Paper Infomation
Does the Shanghai-Hong Kong Stock Connect Program Enhance the Abnormal Rate of Return and Transaction Volatility of the Underlying Stocks: A Quasi-Natural Experimental Design
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Author: Puzhen He, Zhehao Zhu
Abstract: Shanghai-Hong Kong Stock Connect Program, which is a new starting point for the opening up of the mainland capital market, still has many uncertainties. Research on the benefits and market volatility of such policies can provide investors with time to invest in such policies, fluctuations in the underlying stocks of the Chinese stock market, and decision support for the formulation and revision of relevant policies. This paper studies whether there is significant abnormal rate of return in the selected stocks which are in the Shanghai Stock Connect Program within the specified period, the excess return gap between the stocks which are in the program and which are not in the program, and the impact of the Shanghai Stock Connect Program on the volatility of the relevant stocks. Based on the CAPM model and the Fama-French 3-factor model, this paper uses t test to study the significance of the abnormal rate of return. By establishing a difference-in-difference (DID) model, the regression of the abnormal rate of return is tested, and the sample volatility is analyzed according to the influence of the fund transaction. The study found that the stocks in the program have significant abnormal rate of returns during the window period. The Shanghai Stock Connect has brought about a huge change in transaction amount, and policy makers need to improve related and similar policies.
Keywords: Shanghai Stock Connect Program, Abnormal Rate of Return, DID Model, Event Study
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