Quantifying the Impact of the November 2014 Shanghai-Hong Kong Stock Connect

Abstract

The November 2014 Shanghai-Hong Kong Stock Connect represented an important step in China’s capital account liberalization, allowing relatively free movement of investor funds between the two markets for the first time. We offer an initial quantification of the effects of the new program, examining Northbound and Southbound flows of funds over the first two years of the program. While controlling for other sentiment and liquidity effects, we test how these flows may have affected the extent of the premium seen for local A-share listings in Shanghai relative to the prices accruing to the same companies in Hong Kong market trading.

Keywords: Capital account liberalization; Stock returns; Sentiment; Shanghai; Hong Kong

JEL Classification: G15