Study of linkage between mainland and Hong Kong stock market: a view from causality and risk spillover

Abstract

 With the continuous improvement of the interconnection mechanism of the Shanghai and Shenzhen Stock Exchanges and the Hong Kong Stock Exchange, the linkage between the two markets as well as the need for a better understanding of the China A-share market from the global asset allocation perspective has increased. At the same time, when a risk crisis occurs in one of the markets, it will inevitably spread to the other market quickly, triggering a greater scope and degree of risk crisis. Research on risk spillover effects between the Mainland and Hong Kong markets is not only an important financial research problem, but also has strong practical significance for investors' micro-asset allocation and the macro-prudential management and risk prevention of regulatory authorities. It is of great significance for controlling risks, preventing crises before they happen, and ensuring financial stability. This research aims to provide a scientific description of the co-movement and risk spillover between the Mainland and Hong Kong markets by investigating the dynamic linkages between dual-listed A- and H-shares in terms of return and price, as well as the dynamic linkage between mainland and Hong Kong stock market in terms of system risk spillover.