With the Shanghai-Hong Kong Stock Connect program: A research on the co-integration of Shanghai index and Hang Seng Index

Abstract

In recent years, mainland stock market has made great strides and the scale expanses rapidly. With rationalization of the structure of listed companies and the development of the institutional investors, the mainland stock market is gradually becoming more mature. With the large number of mainland enterprises to be listed in Hong Kong, the mainland enterprises in Hong Kong stock market is growing dramatically. In the meantime, the economy of mainland and Hong Kong is connecting more intimately with each other. The capital transactions are getting more frequently and freely. The opening of Shanghai-Hong Kong Stock Connect program established connecting mechanism between the capital of Shanghai and Hong Kong, which has an impact on the linkage of Shanghai and Hong Kong market. The article analyzes empirically the co-movement changing of the common trade time stock price index before staring the Shanghai-Hong Kong Stock Connect program. It divides days from March 18, 2013 to March 18, 2016 to two stages. And then it makes coordination and error correction according to the daily data of the Hang Seng Index and the Shanghai Composite Index. And it dose the empirical analysation to the Granger causality test next. The results showed that it has linkage between Shanghai and Hong Kong after beginning the Shanghai-Hong Kong Stock Connect program. Particularly, Shanghai stock market becomes a guiding role to lead the Hong Kong market. With the degree of internationalization of the Mainland stock market increasing, the impact from International capital market on stock market is increasing. Meanwhile, possibilities of the risk of infection between markets will rise. Consequently, to response test of the international capital and the impact of exchange rate fluctuations and other factors, we need to further establish and improve financial market regulation mechanism.