China-UK Stock Market Linkage Relationship And The Development Of “Shanghai-London Stock Connect”

With China's accession to the WTO,China has continued to open its doors and increased the economic cooperation with other countries.China-British trade has become more and more close,and financial cooperation has become more frequent.The ?Shanghai-London Stock Connect? proposed and prepared by China and Britain in recent years,is the first attempt of cross-border interconnection of Chinese stock markets.And its strategic significance is extraordinary.This paper focuses on the linkage between China-British stock market and the development of ?Shanghai-London Stock Connect?.Firstly,studying the basic situation of the Chinese and British stock markets.The basic situation of Chinese stock market includes the number of domestic listed companies,the market capitalization of domestic listed companies and so on.The basic situation of the UK stock market include the UK's circulation market hierarchy,the total market capitalization of listed companies and the number of companies listed on the Stock Exchange.This paper sorts out the proposed process and operation mode of ?Shanghai-London Stock Connect?.?Shanghai-London Stock Connect? includes two aspects of eastbound and westward operations,and adopts a cross-border conversion mechanism to achieve interconnection.Secondly,this paper uses the ZA test,Granger causality test,GARCH-BEEK(1,1)model and Wald test to study the linear price return spillover relationship and the nonlinear price fluctuation spillover effect of the China-British stock market linkage relationship.Thirdly,the research on the linkage mechanism between China and the UK stock market and the development of ?Shanghai-London Stock Connect?,including the internal linkage mechanism between China and the UK stock market,the impact of the linkage between China and the UK stock market on the development of ?Shanghai-London Stock Connect? and the development of ?Shanghai-London Stock Connect?.There are structural breakpoints in the SSE 180 stock index yield and the FTSE 100 stock index yield.According to the structural breakpoints,the research phase is divided into three time periods,January 5,2007 to March 5,2009,March 6,2009 to March 20,2014,and March 21,2014 to February 1,2019.In terms of linear price return spillover relationship,there is a one-way Granger causality between the SSE 180 stock index yield and the FTSE 100 stock index yield in three stages.The FTSE 100 stock index yield is the Granger reason for the SSE 180 stock index yield.The SSE 180 stock index yield is not the Granger reason for the FTSE 100 stock index yield.This may be due to the trade mechanism in the China-British stock market linkage mechanism.China's trade dependence on the UK is stronger.China's exports to the UK are greater than the UK's imports from China.The proportion of Chinese exports to the UK is also greater than that of China's imports.In terms of nonlinear price fluctuation spillover effect,the SSE 180 stock index yield and the FTSE 100 stock index yield have a two-way volatility spillover effect in the first stage.The SSE 180 stock index yield has an ARCH or GARCH effect on the FTSE 100 stock index yield,and the FTSE 100 stock index yield has an ARCH or GARCH effect on the SSE 180 stock index yield.This may be due to financial contagion.During the financial crisis,international hot money frequently entered and exited,and investment behavior was irrational,which led to the spread of the crisis in the financial market and enhanced the linkage between China-British stock market.In the second stage,there is a one-way volatility spillover effect.The SSE 180 stock index yield has an ARCH or GARCH effect on the FTSE 100 stock index yield,and the FTSE 100 stock index yield has no ARCH or GARCH effect on the SSE 180 stock index yield.This may be caused by direct investment between China-British.From 2010 to 2014,China's direct investment flows to the UK increased significantly,and were significantly larger than the UK's actual foreign direct investment to China.There is no volatility spillover effect in the third stage.The SSE 180 stock index yield has no ARCH or GARCH effect on the FTSE 100 stock index yield,and the FTSE 100 stock index yield has no ARCH or GARCH effect on the SSE 180 stock index yield.This may be due to the limited investment of UK institutional investors in the China's stock market.The investment quota of qualified foreign institutional investors in the UK and the proportion of qualified foreign institutional investors in the UK are generally declining.The proportion of investment quota of RMB qualified foreign institutional investors in the UK and the proportion of RMB qualified foreign institutional investors in the UK are relatively small,less than 10%.The China-British stock market has limited linkages.?Shanghai-London Stock Connect? provides Chinese investors with new investment tools that can spread risks and increase portfolio returns.The limited linkage between the China-British stock market can alleviate the concerns of stock market volatility brought by ?Shanghai-London Stock Connect? to a certain extent.At the same time,it has won more time for the improvement of the interconnection system and risk prevention measures of multinational stock exchanges.However,it should be noted that the development of ?Shanghai-London Stock Connect? is also facing exchange rate risk,information asymmetry risk and liquidity risk.Chinese regulatory authorities should maintain a cautious attitude towards ?Shanghai-London Stock Connect?.In the initial stage of opening,it should be controlled at a certain scale and strict conditions to facilitate supervision and accumulate of experience.Some enterprises may adopt a wait-and-see attitude,and the enthusiasm for participating in ?Shanghai-London Stock Connect? is not high.So,policy promotion should be increased.