The Impact Of Shanghai-Hong Kong Connect Program On AH Premium

The Introduction of Shanghai-Hong Kong Connect program would release China's control of capital flow.According to no arbitrage theorem,increase in investment scales of both Shanghai-listed firms and Hong Kong-listed firms will lead to decrease in AH Premium Index.Howeverin fact the installment of Shanghai-Hong Kong Connect program,on the other hand,worsens AH Premium Index and there is no evidence in showing any significant link between investment scales of either Shanghai-listed firms or Hong Kong-listed firms and AH Premium Index.In this paper,I put forward an eligible assumption,i.e.,market sentiment and stock-specific speculation are somehow related to investment scales of both Shanghai-listed firms and Hong Kong-listed firms,and these two variables are changing during the period I study,ignoring these two variables will lead to biasedness of the coefficients.To construct the market sentiment index,i use market-wide turnover rate,market-wide monthly IPO premium,market situation(bear or bull),composite market return and then adopt main factor analysis to reduce the dimension.Similarly,to construct stock-specific speculation,Iuse the dummy variable of paying out dividend or not,corporate growth property,return on equity,stock-specific risk,price equity ratio,dummy variable of being ST stock or not,dummy variable of being low price stock or not and size and then adopt main factor analysis to reduce the dimension.In this paper,it is shown that after controlling market sentiment and stock-specific speculativeness,increase in investment scales of both Shanghai-listed firms and Hong Kong-listed firms will lead to decrease in AH Premium Index.At the same time,increase in relative sentiment,stock-specific speculativeness and the interactive term of relative sentiment and stock-specific speculativeness will lead to increase in AH Premium Index.Also,if there is no significant difference between A and H stock market's sentiment,increase in A stock market's absolute sentiment will increase AH Premium Index.