Influence Of Shanghai-Hong Kong Stock Connect On The Linkage Of Shanghai-Shenzhen-Hong Kong Stock Market

The Shanghai-Hong Kong Stock Connect program was launched on November 17,2014,which breaking the barrier of the flow of capital between Shanghai and Hong Kong stock market,because it allows international capital in Hong Kong stock market can directly involve in the Shanghai stock market,and meanwhile investors in the Shanghai stock market can involve in the Hong Kong stock market through direct trading.Under this circumstance,the comparative study on co-movements of Hong Kong,Shanghai and Shenzhen before and after the new policy has great practical value not only on investment advice for investors,but also on the reasonable policy expectations for the upcoming Shenzhen-Hong Kong Stock Connect program and Shanghai-London Stock Connect program.In this study,we combined the domestic and foreign literature on the linkage of the stock market and designed a study on the spillover effect of income from the perspective of price,which had been widely used,to invest the lag of Hong Kong,Shanghai and Shenzhen at the background of Shanghai-Hong Kong Stock Connect program.The closing price of Shanghai composite index,Shenzhen component index and Hong Kong's Hang Seng index is on behalf of the stock fluctuation of the three cities.The study range is the year and a half before and after November 17,2014,the day the new policy was launched.By means of log processing,we obtained the exponential logarithmic time series as the variables of empirical analysis.First of all,if the first differential logarithm of time of the three indexes was stable,the E-G two step method was used to determine whether the co-integration relationship between any two of the three cities was changed or not.The empirical results showed that before the Shanghai-Hong Kong Stock Connect program,there was no co-integration relationship between any two of the three cities,while after the new policy,there was a long-term equilibrium relationship between them.Secondly,the result of empirical analysis of the effect of spillover effects between the three cities using vector auto-regression model showed that after the new policy the coefficient of Hang Seng index on the Shanghai and Shenzhen stock indexes became larger,and in turn,the two stock indexes also had larger efficient on Hang Seng index.Finally,using the rate of return of the three cities as the explained variables respectively,we obtained the impulse response function and variance decomposition results,showing that after the new policy,Hong Kong,Shanghai and Shenzhen was more sensitive to the impact of the other two market,and the market fluctuations on their own market has increased also,while the lag of co-movements between Hong Kong,Shanghai and Shenzhen was unchanged.By this study,we knew that after the launching of the Shanghai-Hong Kong Stock Connect program,the co-movement between Shanghai and Shenzhen was weaker,while the co-movement between Shanghai and Hong Kong and the co-movement between Shenzhen and Hong Kong were stronger.For the investors cross different stock markets,the ability to reduce the risk of diversification of the investment of the three cities is weaker,while it provides the possibility to construct reasonable arbitrage model;for the investors in a single market,they can expect the movements of current market through the previous price trend of the other two markets;for the government,because the increase influence of international capital on Shanghai and Shenzhen stock market,we should actively guide the rational investment of domestic investors and it is necessary to strengthen the supervision of international capital to prevent its impact on our capital market.In a word,the new policy is an important part to open our capital market,having achieved the anticipated effect.With the processing of reform and opening,we should have an international perspective on a new policy,enrich financial instruments actively and improve financial liberalization.