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

Author

Listed:
  • 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)

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.

Suggested Citation

  • Tung-Zong (Donald) Chang & Su-Jane Chen & Hongmei Gu & Aijie Jiang, 2018. "A Market Volatility Analysis of the Shanghai-Hong Kong Stock Connect Program," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 17(2), pages 113-121, September.
    • Handle: RePEc:ijb:journl:v:17:y:2018:i:2:p:113-121
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    References listed on IDEAS

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    Cited by:

    1. Wu, Ming & Ohk, Ki Yool, 2023. "Who benefits more? Shanghai-Hong Kong stock Connect—“Through Train”," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 409-427.

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    More about this item

    Keywords

    Hong Kong stock exchange; Shanghai stock exchange; Shanghai-Hong Kong stock connect; risk analysis; GARCH model;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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