Shenzhen-Hong Kong Stock Connect Research Articles

Market liberalization and tax avoidance: Evidence from the Shanghai-Hong Kong Stock Connect Program in China

This study employs two market liberalization programs in China, the Shanghai-Hong Kong Stock Connect (SHSC) program and the Shenzhen-Hong Kong Stock Connect (SZHSC) program, as an exogenous shock to stock market liberalization to explore the impact of market liberalization on tax avoidance. By employing the staggered difference-in-difference regression on Chinese listed firms, we found that market liberalization reduces tax avoidance by approximately 13.1%. This result is robust under parallel trend examination, falsification test, alternative regression methodology, and different measurements for tax avoidance. Additionally, this effect is greater for non-state-owned firms and for firms that have less external monitoring, higher information asymmetry, and stronger financial constraints.

Dynamic correlation and volatility spillover between the stock markets of Shenzhen and Hong Kong

Considering the two-way spillovers of market information, this paper establishes multivariate GARCH models to study the impact of Shenzhen-Hong Kong Stock Connect (SHSC) on the complex co-movements relation between the stock markets of Shenzhen and Hong Kong from the aspects of dynamic correlation and volatility spillover. On the one hand, a t-Copula DCC-GARCH model which combines the Copula function with the DCC-GARCH model is established to model the return rate series of stock index in different stages, and the characteristic that the dynamic correlation coefficient changes with time is analyzed emphatically. On the other hand, a BEKK-GARCH model is established to measure the changes of the volatility spillover effect between the stock markets in Shenzhen and Hong Kong. The results show that the opening of SHSC has gradually increased the dynamic correlation coefficient of the two stock markets, and the openness degree of the two stock markets has increased. At the same time, the volatility spillovers of stock markets in Shenzhen and Hong Kong have shifted from one-way spillover to two-way spillovers, which indicates that the SHSC mechanism has strengthened the correlation degree and has improved the ability of risk spillover in the two stock markets.

Research on Impact of Shenzhen-Hong Kong Stock Connect Mechanism on the Volatility of Stock Markets

The implementation of the Shenzhen-Hong Kong Stock Connect (SHSC) mechanism has realized the largest two-way opening of China's capital market, but also increased the transmission of risks. In order to analyze the impact of SHSC on the volatility of single market in Shenzhen or Hong Kong, this paper establishes the volatility models of stock markets in Shenzhen and Hong Kong based on the GARCH-type models with different perturbation terms. The pre-applicable test is made and the result shows that the return rate series of Shenzhen and Hong Kong stock markets are stable and heteroscedastic, and they meet the conditions of establishing the GARCH-type models. Then, the GARCH model and EGARCH model are established to analyze the volatility of stock markets in Shenzhen and Hong Kong respectively. The results show that the opening of SHSC has increased the short-term volatility of the stock markets in Shenzhen and Hong Kong and improved the efficiency of information transmission between these two stock markets. Moreover, influenced by SHSC, the leverage effect of Shenzhen stock market is increasing, while that of Hong Kong stock market is decreasing.

6.2. Либерализация рынка капитала материкового Китая

На протяжении последних двух десятилетий Китай постепенно, но планомерно открывает свой национальный рынок капитала для иностранных инвесторов. К текущему моменту через так называемые мосты между биржами Шанхая, Шэньчжэня и Гонконга иностранным и китайским инвесторам доступно свыше 2 000 акций для взаимной торговли.For more than the past two decades China has been gradually but systematically opening up its national capital market to foreign investors. Over 2,000 shares for mutual trade have been made available by now to foreign and Chinese investors via the so-called Connects between the exchanges in Shanghai, Shenzhen and Hong Kong. The Chinese stock market today is one of the youngest (the Shanghai Stock Exchange, for example, turns 29 years old this year) and at the same time the most attractive in terms of the profitability/risk ratio developed countries show no tangible dynamics of economic growth, nor yields on their securities, while India and Vietnam, which are comparable in terms of economic growth rates to Chinese ones, cannot offer similar market volumes. For example, the United States has long sought the Chinese capital market to be opened, especially after China had entered the WTO. Russian investors have also been interested in the securities of Chinese companies for a long time, but until as recently as 2014 they had not had a simple mechanism to purchase them. The opening of Chinas huge capital market which is in progress expands the opportunities for Russian investors to diversify their investment portfolios this is especially important in the face of the risk of various sanctions bans that may be imposed by the UK, the EU and the USA. From the standpoint of bilateral economic relations, the access of Russian investors to the Chinese stock and debt markets may contribute to increasing the volume of the currency derivatives market and, subsequently, expanding and strengthening the use of national currencies in trade between Russia and China. The article examines main causes and stages of the liberalization of the Chinese capital market, terms of trade through the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, and the prospects for further opening of the Chinese capital market.

深、港股市相关性与风险溢出效应研究——基于深港通实施前后

深、港股市相关性与风险溢出效应研究——基于深港通实施前后

Asymmetric risk spillovers between Shanghai and Hong Kong stock markets under China’s capital account liberalization

In this paper, we investigate the asymmetric risk spillovers between Shanghai and Hong Kong stock markets under the backdrop of China’s capital account liberalization by measuring the Conditional Value-at-Risk (CoVaR) based on adjusted realized volatilities and variational mode decomposition based copula model. The empirical results show that, the asymmetric features of risk spillovers between the two markets are significant and manifest different states before and after the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect schemes. More specifically, first, the downside risk spillovers from Hong Kong to Shanghai are significantly larger than its upside risk spillovers, while the risk spillovers from Shanghai to Hong Kong is on the contrary. Second, the short-run risk spillovers are more drastic than the long-run risk spillovers, except the risk spillovers from Shanghai to Hong Kong after the Shenzhen-Hong Kong Stock Connect scheme. Finally, by comparing the risk spillovers from two directions, the importance of Shanghai stock market gradually rises up with the implementations of Stock Connect schemes.

Stock Market Volatility and Trading Volume: A Special Case in Hong Kong With Stock Connect Turnover

The cross-boundary Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect provides a special data set to study the dynamic relationships among volatility, trading volume and turnover among three stock markets, namely Shanghai, Shenzhen, and Hong Kong. We employ the Granger Causality test with the vector autoregressive model (VAR) to examine whether Stock Connect turnover contributes to future realized volatility and market volume of these three markets. Our results support the evidence of causality from Stock Connect turnover to market volatility and trading volume. The finding of this causality is consistent with the implication of the sequential information arrival model in the literature.

Capital Market Liberalisation in China: Progress and Challenges

China’s capital market has continued to open up to the world despite disruptions. In the stock market, opening up involves the Shanghai-Hong Kong and the Shenzhen-Hong Kong Stock Connect schemes. In the exchange rate market, renminbi joined the International Monetary Fund’s Special Drawing Rights basket in 2015. In July 2017, China and Hong Kong launched the “Bond Connect” programme. In the near future the focus of capital account liberalisation is likely on the bonds market.

Return and volatility spillovers effects: Evaluating the impact of Shanghai-Hong Kong Stock Connect

This study investigates the impact of the recently introduced Shanghai-Hong Kong Stock Connect. Using high frequency data and dynamic forecasting techniques, we find that the new Stock Connect does contribute to the increasing importance of the Chinese mainland stock market and economic activity. A weak and unstable cointegration relationship is found after this event. Additionally, the Stock Connect has also increased the conditional variance of both stock markets. We observe a leading role of the Shanghai stock market to the Hong Kong stock market in terms of both mean and volatility spillover effects after the Stock Connect. Our study indicates that the opening up of stock markets in China could enhance the leading power, influence the risk level and improve the market efficiency of the Chinese mainland stock market, since the volatility spillover effect from Shanghai to Hong Kong is strengthened. Besides, our results have important policy implications, especially on how policy makers should deal with the increased market interconnectedness and for portfolio managers in choosing potential hedging instruments. The success of Shanghai-Hong Kong Stock Connect provides valuable operational experience for the forthcoming Shenzhen-Hong Kong Stock Connect which could further improve the market efficiency in China.

Demand Shock, Speculative Beta, and Asset Prices: Evidence from the Shanghai-Hong Kong Stock Connect Program

Upon the announcement of the Shanghai-Hong Kong Stock Connect program, connected stocks in the Shanghai Stock Exchange experience significant value appreciation of 1.8% over a seven-day announcement window and significant increases in turnover and volatility compared with unconnected stocks with similar firm characteristics, especially for stocks with higher market beta. The beta effect on stock prices is stronger for stocks with higher beta-to-idiosyncratic variance ratios and is reversed within three months. The results support the speculative nature of beta and the multiplier effect of speculation on demand shocks as predicted by Hong, Scheinkman, and Xiong (2006) and Hong and Sraer (2016). The announcement of the Shenzhen-Hong Kong Stock Connect program serves as an out-of-sample test and confirms our findings.

Are Hong Kong Investors Interested in Shenzhen-Hong Kong Stock Connect<br/>—An Investor Behavior Analysis Based on Shanghai-Hong Kong Stock Connect

In November 2014, Shenzhen-Hong Kong Stock Connect was opened. It has been more than one year until now. Although its transaction is not as expected, the opening of Shenzhen-Hong Kong Stock Connect is a must. Hong Kong investors investing in the A-share market in the Chinese mainland by Shenzhen-Hong Kong Stock Connect are mainly small- and medium-sized institutional investors who have not obtained QFII quota. Through the analysis of their investment behaviors, we have found that the preference of Hong Kong investors is single and concentrated. They extremely prefer financial blue-chip AH share. They will try to invest in growth stock in the unfamiliar A-share market, mainly mid cap stock with relatively high valuation, relatively low dividend, a certain risk and relatively good growth ability. They prefer information technology shares. The opening of Shenzhen-Hong Kong Stock Connect will bring opportunities different from those of Shenzhen-Hong Kong Stock Connect.