Effect of the Shenzhen-Hong Kong stock connect mechanism on stock market volatility

Document Type : Article

Authors

1 School of Mathematics and Economics, Hubei University of Education, Wuhan 430205, P. R. China

2 School of Science, Wuhan University of Technology, Wuhan 430070, P. R. China

3 School of Mathematics and Statistics, Huanggang Normal University, Huanggang 438000, P. R. China

Abstract

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.

Keywords

References

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Scientia Iranica
Volume 29, Issue 1
Transactions on Industrial Engineering (E)
January and February 2022
Pages 372-386

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History

  • Receive Date: 03 June 2019
  • Revise Date: 02 March 2020
  • Accept Date: 27 April 2020

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