Policy Impact on the Chinese Stock Market: From the 1994 Bailout Policies to the 2015 Shanghai-Hong Kong Stock Connect

Abstract

Abstract:From the 1994 bailout policies to the 2015 Shanghai-Hong Kong Stock Connect, the policy impact on the Chinese stock market has changed over time. By May 2015, global investors can directly invest in a more legalized and normalized Chinese stock market, whereas they are still concerned about the policy-oriented market and its attendant risks. In this study, we employ the family of GARCH models to investigate the structural changes in risks with the implementation of a series of policies. Our results show that although many policies improve or stabilize the stock market, certain policies lead to substantial volatility. Among them, macro-control policies and transaction cost adjustments are a double-edged sword, which should be used with caution. Furthermore, with opening-up policies being launched recently, the Chinese stock market has entered a new stage in which it affects international capital markets. However, the increased risks, which may result in a sharp turnaround, cause worry.

Stock Market Volatility and Trading Volume: A Special Case in Hong Kong With Stock Connect Turnover

“…Besides, SH-HK and SZ-HK Stock Connect turnovers gradually increase throughout the year. We find that there is a continuous uptrend of Stock Connect turnover and an increasing cointegration of Mainland China and Hong Kong stock market, consistent with Wang and Chong (2018), Wang et al (2017) and Huo and Ahmed (2017). 9.056 × 10 9 1.945 × 10 9 5.897 × 10 9 5.423 × 10 9 5.321 × 10 9 3.284 × 10 9 Median 1.984 × 10 10 8.705 × 10 9 1.782 × 10 9 4.855 × 10 9 4.864 × 10 9 4.844 × 10 9 3.001 × 10 9 Maximum 8.571 × 10 10 1.573 × 10 10 5.702 × 10 9 2.352 × 10 10 2.536 × 10 10 1.273 × 10 10 1.327 × 10 10 Minimum 7.057 × 10 9 4.514 × 10 9 5.260 × 10 8 6.887 × 10 8 3.965 × 10 8 6.746 × 10 8 3.502 × 10 8 SD 1.463 × 10 10 2.139 × 10 9 6.800 × 10 8 3.523 × 10 9 3.661 × 10 9 2.758 × 10 9 2.164 × 10 9 Skewness 1.654 0.392 Table 5a,b shows the correlation matrices ofmarket RVs, market volumes, and all Stock Connect turnovers.…”

“…Burdekin and Siklos (2018) documents that the A-H premium between Hong Kong and Mainland China's stocks rose substantially from slightly under 100% when the program was launched to nearly 150% in early 2016. In addition to the A-H premium studies, Wang et al (2017) find significant effects of the Stock Connect on both Shanghai and Shenzhen stock market volatility using daily data, although the impact on the Hong Kong market is minimal. Huo and Ahmed (2017) investigate the impact of the SH-HK Stock Connect and conclude that Stock Connect significantly strengthened volatility spillover between the two markets.…”

What Drives China's 2015 Stock Market Surges and Turmoil?

“…Therefore, although unsolved, the puzzles of China's stock market seem to make sense considering its features, such as over‐speculation by investors, domination by SOEs, and excessive intervention of the Government. What is more, China's stock market has been developing rapidly and thus its mechanism may change as time passes (Tsai et al ., ; Wang et al ., ). Though China is currently undergoing an economic transition, few studies offer a comprehensive understanding of what is happening in China's stock market.…”

Stock Market Development and Economic Performance of West-African Countries: A Dynamic Panel Data Analysis

“…Additionally, stock market helps to attract more savings into productive investment and prevent the early withdrawal of capital invested in the long-term projects. King and Levine (1993), Rasmiah and Rasmiah (2016) and Wang, Tsai and Li (2017) also suggested another approach to identify the channel of transmission between financial markets and economic growth-financial markets help the functioning of efficient resource allocation. Therefore, an economy with a well-functioning financial market will have a higher productivity growth rate.…”

“…Most of these stock markets still suffer the problems of low liquidity, higher cost of trading, unstable exchange and inflation rates, declined in growth domestic product, low frequency trading, information and disclosure deficiencies, poor supervision and regulatory framework and political instability (Okoye, Modebe, Taiwo & Okorie, 2016;Popoola et al, 2017;African Capital Market News, 2018). Furthermore, studies have shown that countries with low level of corruption practices and well-functioning, sound and developed stock market experienced drop in poverty levels, increased in foreign investment inflow and well-functioning economic activities grow more rapidly than those countries with high level of corruption and weak economic indices (Andrianaivo & Yartey, 2009;Beck, Maimbo, Faye & Triki, 2011;Oshaibat, 2016;Wang, Tsai & Li, 2017).…”