A Study Of Co-Movement Between Mainland Stock Market And Hong Kong Stock Market Under The Background Of Shanghai-Hong Kong Stock Connect And Shenzhen-Hong Kong Stock Connect

The Shenzhen-Hong Kong stock connect successively launched after the Shanghai-Hong Kong stock connect which has been launched in two years.They are the interconnection bridges between the mainland and the Hong Kong stock markets.For mainland people and investors in Hong Kong,two bridges provide opportunities to invest in the two sides of stock markets,which is conducive to promoting the common development and prosperity of the two capital market.Interconnectivity may change the correlation between the mainland and the Hong Kong stock market,which is diectectly reflected in the co-movement between the two stock market,as a result,financial risk is potential to transmit mutually.Therefore,under the background of interconnectivity,it is practically significant for the sound development of two stock markets to study the co-movement characteristics.Domestic scholars have contributed a lot to the research on co-movement between the mainland and the Hong Kong stock market.Especially after the opening of the Shanghai-Hong Kong stock connect in 2014,the co-movement research on the two stock market has become a hot topic.Most of research methods are based on the mature traditional econometric method and DCC model,while some scholars adopt the Copula model.The Copula model gets rid of the restriction of the same distribution,and can effectively characterize the asymmetric tail dependence.As far as the research results are concerned,the co-movement relationship between the two stock markets and the strengthening effect of Shanghai-Hong Kong stock connect on the two stock markets is confirmed in most literatures.As the Shenzhen-Hong Kong link was officially opened in December 2016,there is less research on the co-movement between the mainland and Hong Kong stock market based on the new background of Shenzhen-Hong Kong stock connect.The start of this paper is to do a comparison between the two policies which may have different impact to the co-movement between the mainland and Hong Kong stock market.Then excavted the co-movement rules between the two stock markets.In this paper,we analyze the co-movement effect between the two markets using the time-varing Copula model and the association rule mining.Based on the time-varing Copula model,we analyze the change of dynamic association between the two markets from the perspective of Kendall rank correlations and the tail dependence.Then we explore the co-movement rules of the two markets from two aspects:spot co-movement and lagging co-movement.The paper draws four conclusions as following:(1)The Kendall rank correlation coefficients between the two stock markets both shows a short-term increase,which suggests that the co-movement has been strengthened.In the long term,the impact of the Shanghai-Hong Kong stock connect on increasing the co-movement strength is more significant.The stability of the co-movement has both been promoted since the implementation of the two policies.(2)Lower tail dependence of the Shanghai and Hong Kong stock index is higher than the upper tail dependency,which shows that the probability of simultaneous collapse of the two markets is greater than that of simultaneous inflation.The performance of lower tail dependence coefficient is different in the two situation,while the upper tail dependency performs consistently in the two situation.The impact of the Shanghai-Hong Kong stock connect on increasing the tail co-movement strength is more significant.(3)A series of spot linkage rules are obtained based on association rule.On the whole,Hong Kong and Shanghai stock market have an equal spot co-movement impact on each other.But the spot co-movement impact of Shenzhen to Hong Kong is weaker than that of Hong Kong to Shenzhen.(4)A series of lagging linkage rules have been obtained based on association rule.There is a bidirectional lagging reaction between Shanghai and Hong Kong markets.However,there is unidirectional lagging co-movement between Hong Kong and Shenzhen markets.Only the lagging co-movement impact of Hong Kong to Shenzhen is significant.Based on the above conslusions,two policy recommendations are put forward in the paper.The first recommendation is to strengthen dynamic supervision and take measures in advance to deal with the risk overflow which may be caused by sharp rise and flow.The second recommendation is to reduce the difference in the efficiency of resource allocation between Shenzhen and Hong Kong capital market.