Abstract
Whether capital market opening improves the price discovery efficiency of stock market is an important issue. Shanghai-Hong Kong Stock Connect (hereafter, SHKSC) is a milestone event in the opening up of China’s capital market. Based on SHKSC, using the method of PSM + DID, we study the impact of capital market opening on the price discovery efficiency from two dimensions-stock price information content and price reaction speed to information. Our research shows that capital market opening did not increase stock price information content, but speed up the reaction of price to information. Therefore, capital market opening improves capital market’s price discovery efficiency in terms of response speed of stock price to information. Further analysis shows that capital market opening affects stock price reaction speed through improving market information environment and reducing insider trading, but it has not yet had a substantial impact on listed companies’ earnings quality, which is the main participant in the capital market, and therefore has failed to influence the stock price information content. In order to maximize the effectiveness of capital market opening, it is necessary to introduce more effective policies to improve the information disclosure quality of listed firms and reduce the level of insider trading.
Highlights
Whether capital market opening improves the price discovery efficiency of stock market is an important issue
Based on SHKSC, using the method of Propensity Score Matching (PSM) + DID, we study the impact of capital market opening on the price discovery efficiency from two dimensionsstock price information content and price reaction speed to information
Further analysis shows that capital market opening affects stock price reaction speed through improving market information environment and reducing insider trading, but it has not yet had a substantial impact on listed companies’ earnings quality, which is the main participant in the capital market, and has failed to influence the stock price information content
Summary
E paper mainly refers to two lines of literature: the economic consequences of capital market opening and the stock price discovery efficiency. The capital market opening can effectively improve the information environment of open countries, increase information transparency, and reduce stock price synchronization [6, 26]. Ird, if the company has an urgent need for overseas capital, in order to attract foreign investment, the company will disclose higherquality accounting information in order to cater to foreign institutional investors, improving the capital market information environment, lower the degree of firm’s information asymmetry, and help increase the stock’s pricing efficiency. E investment of foreign investors adds international market risks into the A-share market, which can cause domestic small and medium investors to trade too frequently due to panic, increase market volatility, and reduce the price discovery efficiency of stock market [29]. Erefore, we propose the alternative hypothesis: H1b: the initial stage of capital market opening did not improve the price discovery efficiency of stock market
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