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

69 Pages Posted: 1 Feb 2016 Last revised: 27 Feb 2021

See all articles by Clark Liu

Clark Liu

Tsinghua University - PBC School of Finance

Shujing Wang

Tongji University

K.C. John Wei

Hong Kong Polytechnic University

Date Written: August 10, 2020

Abstract

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.

Keywords: Demand shock; Speculative beta; Heterogeneous beliefs; Short-sale constraints; Market liberalization

JEL Classification: G11, G12, G15, G18

Suggested Citation

Liu, Clark and Wang, Shujing and Wei, Kuo-Chiang (John), Demand Shock, Speculative Beta, and Asset Prices: Evidence from the Shanghai-Hong Kong Stock Connect Program (August 10, 2020). PBCSF-NIFR Research Paper, Available at SSRN: https://ssrn.com/abstract=2725306 or http://dx.doi.org/10.2139/ssrn.2725306

Clark Liu (Contact Author)

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

Shujing Wang

Tongji University ( email )

Shanghai
China

Kuo-Chiang (John) Wei

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

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