Does stock market liberalization reduce stock price synchronicity? —Evidence from the Shanghai-Hong Kong Stock Connect

Abstract

Using a recent reform policy of stock market liberalization in China, the Shanghai-Hong Kong Stock Connect(SHSC), as a quasi-natural experiment, we investigate the effect of stock market liberalization on stock price synchronicity. The difference-in-difference analysis suggests that the implementation of the SHSC significantly reduces stock price synchronicity of eligible firms listed in the Shanghai Stock Exchange, and this effect mainly exists in listed firms with a lower degree of openness. Furthermore, we document that the SHSC promotes information transparency and voluntary disclosure frequency. At last, we find that the SHSC does not affect stock price synchronicity of eligible firms listed in the Hong Kong Stock Exchange.