The time-varying interaction of northbound capital flows and stock market performance in China

Yun He, Wei Li, Xiaofen Tan and Yufan Wang

Finance Research Letters, 2024, vol. 69, issue PA

Abstract: This study employs the SV-TVP-SVAR model to investigate the dynamic interactions between northbound capital and stock market performance in China, highlighting the time-varying statistical relationships. The findings reveal that the influence of market returns on northbound capital is predominantly short-term, exhibiting negative feedback, which helps stabilize the market during periods of extreme volatility. However, during market reversals, northbound capital shows positive feedback, correlating with improving stock returns. Regarding predictability, while northbound capital provides some predictive power for stock returns, this influence diminishes quickly. The study further notes that retail investors tend to imitate the high-frequency trading patterns of northbound capital.

Keywords: Northbound capital; Market return; Time-varying trading pattern; SV-TVP-SVAR model (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 G17 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:69:y:2024:i:pa:s1544612324011061

DOI: 10.1016/j.frl.2024.106076

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