Impact Of A-share Internationalization On Chinese Capital Market

On June 1,2018,MSCI included 234 Chinese A-shares into the MSCI Emerging Market Index at 2.5%as scheduled,and the internationalization of A-shares officially began.The internationalization of A-shares has not only brought huge capital inflows into the A-share market,but also attracted the participation of international institutional investors.It has also affected and changed the operating strategies of listed companies,the risk of A-share market investment,and the effectiveness of market pricing.After nearly two years,it is very important to test whether the A-share entry into the market has a beneficial effect on the A-share market,evaluate the effectiveness of the A-share inclusion into MSCI,and analyze the new risks arising from the internationalization of the A-share.This paper studies the impact of A-share internationalization on Chinese capital market from the following three perspectives:(1)whether A-share internationalization will significantly increase or decrease the investment risk of our capital market;(2)whether A-share internationalization has significantly changed the risk structure of Chinese capital market;(3)Whether the internationalization of A shares has promoted the effectiveness of asset pricing in Chinese capital market.In response to problem(1),this paper uses a linear regression model,using the MSCI Emerging Market Index and the CSI 300 Index as the market,230 stocks entered as research targets,and systematic risk as the observation variable.The cross-section comparison confirmed that the internationalization of A-shares did increase the average systemic investment risk of the included stocks,and the systemic investment risk of the stocks in the international market was significantly higher than the systemic investment risk in the A-share market.In response to problem(2),this paper constructs an ARMA-GARCH model to model the volatility term structure of the MSCI Emerging Market Index,and the CSI 300 index before and after the A-share internationalization,and uses the fitted results to make horizontal and vertical comparison.It proves that the internationalization of A-shares does increase the average investment risk of the A-share market,and promotes the effectiveness and timeliness of information dissemination in the A-share market.This paper also proves through multiple sets of correlation analysis that A-share internationalization has significantly improved the A-share market and the international market's correlation with the RMB interest rate and the RMB exchange rate.It is speculated that the A-share internationalization will indeed promote the A-share market's way to merge international capital markets.In response to problem(3),this paper uses the BJS test model to test the validity of CAPM in the MSCI China A-share international market.The results show that it basically meets the securities market line,which indicates that 230 A-share stocks have been separated from Non-systematic risk after internationalization.This proves that the participation of international institutional investors will significantly mitigate market non-systemic risks and improve market sentiment.It also proves that A-share internationalization is making stock prices consistent with the long-term,but it still cannot completely eliminate the dominant position of individual investors' pricing mode in the A-share market,and speculates that there are other independent variables(such as interest rates,exchange rates)to explain the excess returns on securities together with market excess return.