Asymmetric Spillover Effects Between Shanghai-Hong Kong Stock Connect Capital Flows and Stock Market Volatility: A Dynamic Analysis Based on Investor Sentiment

Chen Zhu

SAGE Open, 2025, vol. 15, issue 3, 21582440251365481

Abstract: We employ the SV-TVP-SVAR model to explore the asymmetric spillover effects between Shanghai-Hong Kong Stock Connect capital flows and stock market volatility, as well as the role of investor sentiment. Our findings reveal significant asymmetric spillover effects between Shanghai-Hong Kong Stock Connect capital flows and mainland China stock market volatility, with mainland investors’ sentiment playing a moderating role. Additionally, the first legal case of cross-border manipulation of the Shanghai-Hong Kong Stock Connect has caused mainland investors to distrust the mechanism, subsequently leading to a decline in the mainland stock market index. The increase in the daily limit of Shanghai-Hong Kong Stock Connect has not alleviated mainland investors’ concerns about cross-border capital flow risks, but instead, has led to a negative impulse response of the mainland stock market index to the net capital inflows through Shanghai-Hong Kong Stock Connect. JEL Classification: G15, F32, G14.

Keywords: Shanghai-Hong Kong stock connect; cross-border capital flows; investment sentiment; stock market volatility; asymmetric spillover effects (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:sae:sagope:v:15:y:2025:i:3:p:21582440251365481

DOI: 10.1177/21582440251365481

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