The Effect of the China Connect

Chang Ma, John Rogers and Sili Zhou

No GRU_2020_028, GRU Working Paper Series from City University of Hong Kong, Department of Economics and Finance, Global Research Unit

Abstract: Stock market liberalization generates benefits and costs. We estimate these effects using the Shanghai (Shenzhen) - Hong Kong Stock Connect, an important opening that allows foreign investors to trade a subset of mainland Chinese firms. The liberalization brought connected Chinese firms lower funding costs and more investment, but also increased sensitivity to foreign shocks. These effects are stronger for firms whose stock return has a higher covariance with the world market return and for firms relying more on external financing. We find that both (greater) risk sharing and (lower) funding cost channels explain our results.

Keywords: Capital Account Liberalization; Capital Controls; Global Financial Cycle; Foreign Spillovers; China Connect; Corporate Investment (search for similar items in EconPapers)
JEL-codes: E40 E52 F38 G15 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2020-12-07
New Economics Papers: this item is included in nep-cna, nep-fdg and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: The effect of the China Connect (2020)
Working Paper: The Effect of the China Connect (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:cth:wpaper:gru_2020_028

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