Paper: arXiv 2602.14754

Authors: Jiaqi Liu, Chen Tang

Abstract

This paper investigates the impact of the Shanghai-Hong Kong Stock Connect (SHHK Stock Connect) on the A-H share price premium and examines whether the policy effect is contingent on market efficiency. Using monthly data for 67 Shanghai-listed A-H dual-listed firms from January 2011 to May 2019, we employ a dynamic panel model estimated via two-step system generalized method of moment (GMM) to account for the persistence of the premium and potential endogeneity. Market efficiency is proxied by trading-friction measures derived from daily high-low price ranges. Our findings indicate that the implementation of SHHK Stock Connect is associated with an average 18.4% increase in the A-H premium. However, this effect is heterogeneous: the marginal impact of the policy is more pronounced for firms operating in less efficient markets and weaker for those with higher efficiency, suggesting that pre-existing trading frictions shape the policy outcome. No significant response is observed at the announcement stage. Placebo tests and alternative efficiency measures confirm the robustness of the efficiency-dependent effect. Overall, the results underscore the importance of the information environment in shaping the outcomes of financial liberalization.

Complexity vs Empirical Score

  • Math Complexity: 3.5/10
  • Empirical Rigor: 7.5/10
  • Quadrant: Street Traders — practical and empirical, lighter on theory

Why this score: The paper provides a rigorous empirical evaluation of the Shanghai-Hong Kong Stock Connect using dynamic panel GMM and Corwin-Schultz friction proxies to explain heterogeneous policy responses. While mathematically straightforward, the empirical methodology, robustness checks, and clear exposition make it a solid empirical study.

Research Flowchart

  flowchart TD
    A[Research Goal: Impact of SHHK Stock Connect on A-H Share Premium & Role of Market Efficiency] --> B[Data Inputs: Monthly data for 67 A-H dual-listed firms 2011-2019]
    B --> C[Compute Variables: A-H Premium & High-Low Range Trading Friction Proxies]
    C --> D[Methodology: Dynamic Panel Model via Two-Step System GMM]
    D --> E[Robustness Checks: Placebo Tests & Alternative Efficiency Measures]
    E --> F[Findings: Policy increased average premium by 18.4% with no announcement effect]
    E --> G[Key Outcome: Policy impact is heterogeneous—stronger in less efficient markets]

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0 of 44 cited works are in the corpus; resolved via arXiv source bundles, Semantic Scholar and OpenAlex. Corpus-wide: 2518 linked papers.