Abstract
From the 1994 bailout policies to the 2015 Shanghai-Hong Kong Stock Connect, the policy impact on the Chinese stock market has changed over time. By May 2015, global investors can directly invest in a more legalized and normalized Chinese stock market, whereas they are still concerned about the policy-oriented market and its attendant risks. In this study, we employ the family of GARCH models to investigate the structural changes in risks with the implementation of a series of policies. Our results show that although many policies improve or stabilize the stock market, certain policies lead to substantial volatility. Among them, macro-control policies and transaction cost adjustments are a double-edged sword, which should be used with caution. Furthermore, with opening-up policies being launched recently, the Chinese stock market has entered a new stage in which it affects international capital markets. However, the increased risks, which may result in a sharp turnaround, cause worry.
Highlights
On 17 November 2014, securities regulators in China and Hong Kong issued a policy called the Shanghai-Hong Kong Stock Connect, allowing hundreds of Shanghai-listed companies to be traded in Hong Kong with limited quotas and vice versa
We explore the impact of major policies and stages from the 1994 bailout policies to the 2015 Shanghai-Hong Kong Stock Connect by employing the family of GARCH models
We explore the structural changes of volatility in the six stages of the Chinese stock market by using EGARCH-M models
Summary
On 17 November 2014, securities regulators in China and Hong Kong issued a policy called the Shanghai-Hong Kong Stock Connect, allowing hundreds of Shanghai-listed companies to be traded in Hong Kong with limited quotas and vice versa. Combined with the following Shenzhen-Hong Kong Stock Connect, the program enables China to further integrate its domestic and offshore markets, and promote the efficiency of financing and investment. The IPO reform began on August 2010, intended to allow the market to play a decisive role in IPOs. the government has intensively launched a series of opening-up policies to connect the Chinese stock market to international capital markets since 2012. This study investigates how a series of policies affects the Chinese stock market between 1994 and May 2015. Research on the changes in the Chinese stock market after government policy changes and how these policies affect the market under different market conditions are significant for both domestic investors and global investors. Based on our empirical findings, we formulate policy recommendations to enhance market development for China, and for other emerging markets
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