The Impact on A-H Dual Listed Stocks from Implementation of the Shenzen-Hong Kong Stock Connect

Download or read book The Impact on A-H Dual Listed Stocks from Implementation of the Shenzen-Hong Kong Stock Connect written by Yucheng Yang and published by . This book was released on 2017 with total page 65 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study found that the correlation between the Shenzhen index, Shenzhen 100 index and Hang Seng index has decreased since the implementation of the Shenzhen Connect. Moreover, there is a decreased correlation for the 16 dual-listed stocks between Shenzhen and Hong Kong. It is possible that the high valuation of Shenzhen stocks compared to Hong Kong stocks is the main reason. This study used 16 dual-listed stocks in the Shenzhen Market with a two-year sample period from 1 January 2016 to 31 December 2017 as the sample to test the impact of the implementation of the Shenzhen Connect on price gap changes of these dual-listed stocks. Moreover, this study looks at the impact of interest rate changes in China and the US on the price gap of dual-listed stocks. This study found that the price gap was enlarged after the implementation of the Shenzhen Connect. The potential explanation includes different investment preferences between Chinese investors and Hong Kong investors. However, the results for the Shenzhen Connect does not appear to be robust to an alternate definition of the price gap variables. The study found Chinese investors are insensitive to interest rate changes in China. Moreover, an increase in the US interest rate will increase the price gap of dual-listed stocks since capital flow back to the US from Hong Kong detriments the Hong Kong stock market. At the same time, the interest rate difference between the US and China positively affects the price gap of dual-listed stocks. The positive coefficient might suggest a combination of the insensitivity of interest rate changes of Chinese investors and capital outflow from Hong Kong to the US. This study also examined liquidity preference hypothesis, asymmetric information hypothesis, demand elasticity hypothesis and risks preference hypothesis. Consistent results are found with other literature.