High frequency volatility spillover effect based on the Shanghai-Hong Kong Stock Connect Program

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Abstract

The authors explore the influence of the Shanghai-Hong Kong Stock Connect Program (SHSCP, begun on November 17, 2014) on the one-minute intraday high frequency volatility spillover between the two markets. The program is a strategic movement of the Chinese capital market opening up to the rest of world, which has milestone implications for the development of China’s financial market (enhancing the financial center status for both Shanghai and Hong Kong, the internationalization of Chinese currency, and enhancing its economic strength in the world economy). The authors apply asymmetric BEKK-GARCH and adopt the VAR approach as a robustness test. The results indicate that while there is no volatility spillover in the pre-connect period, strong bi-directional volatility spillover exists in the connected period. The statistic test results support the assumption that the program does increase the capital linkage between these two markets.
Original languageEnglish
Pages (from-to)8-15
Number of pages8
JournalInvestment Management and Financial Innovations
Volume12
Issue number1
Publication statusPublished - 2015

Keywords

  • Shanghai-Hong Kong Stock Connect Program
  • volatility spillover
  • asymmetric BEKK-GARCH
  • VAR approach
  • Mainland China capital market’s opening-up policy

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