The Effect of the China Connect

59 Pages Posted: 8 Aug 2019 Last revised: 15 Dec 2020

See all articles by Chang Ma

Chang Ma

Fudan University - Fanhai International School of Finance (FISF)

John H. Rogers

Board of Governors of the Federal Reserve System

Sili Zhou

Fudan University - Fanhai International School of Finance (FISF)

Date Written: December 1, 2020

Abstract

Stock market liberalization generates benefits and costs. We estimate these effects using the Shanghai (Shenzhen) - Hong Kong Stock Connect, an important opening that allows foreign investors to trade a subset of mainland Chinese firms. The liberalization brought connected Chinese firms lower funding costs and more investment, but also increased sensitivity to foreign shocks. These effects are stronger for firms whose stock return has a higher covariance with the world market return and for firms relying more on external financing. We find that both (greater) risk sharing and (lower) funding cost channels explain our results.

Keywords: Capital Account Liberalization; Capital Controls; Global Financial Cycle; Foreign Spillovers; China Connect; Corporate Investment

JEL Classification: F38; E40; E52; G15

Suggested Citation

Ma, Chang and Rogers, John H. and Zhou, Sili, The Effect of the China Connect (December 1, 2020). Available at SSRN: https://ssrn.com/abstract=3432134 or http://dx.doi.org/10.2139/ssrn.3432134

Chang Ma

Fudan University - Fanhai International School of Finance (FISF) ( email )

China

John H. Rogers

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Sili Zhou (Contact Author)

Fudan University - Fanhai International School of Finance (FISF) ( email )

220 Handan Road
Shanghai, 200433
China

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