The Impact Of The Connect Programs On Intraday Return And Volatility Spillover Effect Among Shanghai,Shenzhen And Hong Kong Stock Markets

This work investigates the return and volatility spillover effect among the Shanghai,Shenzhen and Hong Kong Stock Exchange(HKSE)before and after the Shenzhen-Hong Kong Stock Connect.The Connect Programs are partial stock market liberalization policies that will enhance the activeness and the competitiveness of the Chinese markets since these markets are now exposed to foreign investors.Using 5-minutes high-frequency data,we applied a Vector Error Correction Model(VECM)to analyze the co-movement and the return transmission among these markets in a pairwise manner.We also applied a Bivariate Asymmetric BEKK GARCH model to estimate the spillover effects of conditional volatilities among these markets.We find a weak cross-market return spillover,but a significant bidirectional volatile transmission among these markets before and after the connect programs.Particularly,HKSE plays a leading role over the Shanghai Stock Exchange(SSE)and the Shenzhen Stock Exchange(SZSE),but the leadership power decreases after the connect programs.We find that cross-markets influence seems to dominate the own-market influence in our volatility persistence analysis among the pairwise markets in both event periods.Our research on these connect programs offers policy implications to investors and market regulators and also serves as an operational experience for further financial market liberalization reforms such as the forthcoming Shanghai-London Stock Connect.