The Information Spillover Effect Of Shenzhen-Hong Kong Stock Connect’s Establishment Between SZSE And HKEx

Studying the opening policy of Chinese capital market has always been an important subject.Since the reform and opening up,China has continued to deepen market-oriented reforms and has adopted a more active and open attitude to integrate into the world economic stage.With the deepening of economic globalization and international financial integration,capital markets around the world have become more closely linked,and as the link between the real economy and the financial markets,the stock markets around the world are becoming more closely linked.Under such circumstances,the opening of China’s capital market shall be a general trend with causious enough.On December 5,2016,it marked the official establishment of Shenzhen-Hong Kong Stock Connect mechanism to connecet the Shenzhen Stock Exchange and the Hong Kong stock market.It is another open measure of the mainland China capital market after the ShanghaiHong Kong Stock Connect.Therefore,in view of the need to review past policies and sum up experience,whether Shenzhen-Hong Kong Stock Connect has fulfilled its original policy objectives is a question worth exploring.This paper will apply the Cross Correlation Function(CCF)to explore the information spillover effects of the Shenzhen Stock market and the Hong Kong stock market before and after the Shenzhen-Hong Kong Stock Connect is established in order to dicover what the role of Shenzhen-Hong Kong Stock Connect play in the communication of information between two markets.First,this paper will briefly introduce the concept of information spillover and the CCF model.After linearly filtering the logarithmic returns of the stock indices from Shenzhen stock market and Hong Kong stock market,the CCF model has been applied to study the significant in three parts,including mean,volatility,and extreme risk spillovers.The CCC-MGARCH model and rolling window test has been applied for robustness test.Shenzhen Stock Exchange Component Index(SZI),Shenzhen Stock Exchange Composite A Share Index(SZCA),Shenzhen Stock Exchange 100(SZ100),Shenzhen Stock Exchange 200(SZ200),are selected as the representative samples of Shenzhen stock market.The Hang Seng Index(HSI),the Hang Seng China Affiliated Corp Index(HSCC),the Hang Seng China Enterprises Index(HSCE),the Hang Seng HK35(HK35)are selected as the representative samples of the Hong Kong stock market,as well as the Straits Times Index(STI),Nikkei 225(N225)are selected as the comparative stock index.The first time window traceback from the day of the official establishment of ShenzhenHong Kong Stock Connect,December 05,2016,to April 30,2014.The second time window extended from the day to April 30,2019.The research results in this paper find that the interaction between the Hong Kong stock market and the Shenzhen stock market has changed significantly.It is significant in the increase in volatility and risk spillover events of between Shenzhen stock indices and HSI.Both the instantaneous risk spillover and lagged volatility spillover has been found after the establishment of Shenzhen-Hong Kong stock connect.It confirms that Shenzhen-Hong Kong Stock Connect will increase the liquidity between the two markets.The statistical significance of information spillover has changed from not significant to significant,which is completely consistent with the policy purpose of Shenzhen-Hong Kong Stock Connect.Therefore,this research believes that the Shenzhen-Hong Kong stock connect has played a positive role in the information transmission between two markets and it is a successful policy.However,the research also finds that the information spillover from the Hong Kong stock markets to the Shen Zhen stock markets is still at a low level which is not good for two closely connected markets.Based on the above viewpoints,this paper proposes policy recommendations that should continue to deepen capital market reforms,reduce transaction restrictions,promote exchanges between the two places,in order to improve the pricing efficiency and international influence of the Shenzhen stock market on the premise of stabilizing the market and regulatory risks.