Research On The Market Effect Of Shanghai-Hong Kong Stock Connect Capital Flow

With the implementation of the Shanghai-Hong Kong and Shenzhen-Hong Kong stock connect system,the opening capital market has become an important way and inevitable feature of the mature development of financial market.The fun flow has been promoted to run between different markets because of the market opening.Investors can learn more about stocks from different markets so that they can allocate their asset more reasonably,which will promote the market running more efficiently.With the implementation of the Shanghai-Hong Kong stock connect system,the fund flow between the two places has become more convenient.The research on the effectiveness of the two stock markets will be of significant reference value for investors.Fund flow between two markets represents the information transmission.However,the information disclosure is not good enough to make investors to invest rationally.This paper focus on whether the fund flow between Shanghai-Hong Kong stock connect system that represents the information disclosure promote the market more efficiently,followed by an attempted explanation of the phenomenon with the application of the local bias theory.The study takes the excess return rate of the shares listed simultaneously in the Shanghai-Hong Kong stock connect as the dependent variable(DV),the Northward and the Southward fund flows as the independent variables(IV),the growth rate of both the Shanghai Composite Index and the Hang Seng Index,the financial indicators of each share and the market volume variables as the control variables(CV),covering the monthly data from January 2015 to June 2019 as the sample spacing.Analytic tools used to investigate the variables in this study include descriptive and statistical data analysis,stationary test,multicollinearity test,OLS regression,and Granger causality test.Through the empirical study,we find that the flow between Shanghai and Hong Kong stock connect has no significant impact on the overall market return.Because no matter from the perspective of the number of tradable shares or the total transaction amount,the Shanghai-Hong Kong stock connect system only occupies a small part of the whole trading market.However,the net outflow of capital from the Northward has a significant positive impact on the excess return of A & H shares listed in Shanghai,and the net outflow of capital from the Southward has a significant negative impact on the excess return of A & H shares listed in Hong Kong.Local bias theory shows that investors prefer to invest the locally listed stocks or the stocks they knew before.The findings reveal that investors have an obvious preference for their more familiar “local” stock,which is indeed in accordance with the Home Bias Theory.The primary cause is that the incomplete information disclosure system in our stock market leads the investors to have comparative advantage of information of their local stocks and have difficulty in obtaining information on stock markets outside the local area.