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Do the Shanghai–Hong Kong & Shenzhen–Hong Kong Stock Connect programs enhance co‐movement between the Mainland Chinese, Hong Kong, and U.S. stock markets?

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  • Shuangqi Li
  • Qi‐an Chen

Abstract

The Shanghai–Hong Kong Stock Connect (SH–HK–SC) and Shenzhen–Hong Kong Stock Connect (SZ–HK–SC) programs aim to strengthen the openness of Mainland Chinese stock market. They are considered milestones in the development process of the Mainland Chinese capital market. This paper studies the effects of the SH–HK–SC and SZ–HK–SC programs on the co‐movement between the Mainland Chinese, Hong Kong and U.S. stock markets in terms of dynamic conditional correlation by the t‐copula–DCC–GARCH model. We find that both programs do not substantively enhance the daily price co‐movements among the examined markets for all pairs except the Hong Kong–U.S. pair. The combination effect of the programs significantly enhances the weekly price co‐movements between the Mainland Chinese and Hong Kong, or U.S. stock market after the SZ–HK–SC program, with an insignificant effect on the Hong Kong–U.S. pair. Although the multiple breakpoint tests for the daily data and weekly data exhibit somewhat different results, the structural breakpoints of the dynamic correlation coefficients among the stock markets easily appear during the subprime crisis. Some possible explanations are provided for the results, and correspondent suggestions are given for investors and policymakers.

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  • Shuangqi Li & Qi‐an Chen, 2021. "Do the Shanghai–Hong Kong & Shenzhen–Hong Kong Stock Connect programs enhance co‐movement between the Mainland Chinese, Hong Kong, and U.S. stock markets?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2871-2890, April.
    • Handle: RePEc:wly:ijfiec:v:26:y:2021:i:2:p:2871-2890
    DOI: 10.1002/ijfe.1940
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    2. Yao, Yinhong & Li, Jingyu & Chen, Wei, 2024. "Multiscale extreme risk spillovers among the Chinese mainland, Hong Kong, and London stock markets: Comparing the impacts of three Stock Connect programs," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 1217-1233.
    3. Kin Ming Wong & Kwok Ping Tsang, 2023. "Inclusions and Exclusions of Stocks in Cross-Border Investments: The Case of Stock Connect," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 30(4), pages 701-727, December.

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