A Market Volatility Analysis of the Shanghai-Hong Kong Stock Connect Program

Tung-Zong (Donald) Chang, Su-Jane Chen, Hongmei Gu and Aijie Jiang
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Tung-Zong (Donald) Chang: College of Business, Metropolitan State University of Denver, U.S.A.
Su-Jane Chen: College of Business, Metropolitan State University of Denver, U.S.A.
Hongmei Gu: Center for China Public Sector Economy Research & School of Economics, Jilin University, China
Aijie Jiang: School of Economics, Jilin University, China

International Journal of Business and Economics, 2018, vol. 17, issue 2, 113-121

Abstract: The Shanghai-Hong Kong Stock Connect Program is a major development in China's overall financial reform effort, making its capital markets more accessible to global investment communities. The program utilizes the well-established Hong Kong Stock Exchange (HKEX) as a means to make Shanghai Stock Exchange (SSE) more accessible to foreign investors via the link to HKEX and in the process gives SSE more international exposure, though potentially at the expense of HKEX. We examine the impact of the Connect Program on the overall market volatility before and after two main dates: announcement date and launch date. The results show a positive market anticipation effect for both exchanges after the announcement, with their respective market risks declining significantly even before its official launch. However, the results also detect a negative effect in that both exchanges endured a significant surge in their respective volatility after program launch. Overall, the volatility risk of HKEX after launch was significantly below its pre-announcement level while SSE exhibited a completely opposite result.

Keywords: Hong Kong stock exchange; Shanghai stock exchange; Shanghai-Hong Kong stock connect; risk analysis; GARCH model (search for similar items in EconPapers)
JEL-codes: G14 G15 G23 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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