Herding Behavior between Chinese and Hong Kong Stock Market—Based on Shanghai-Hong Kong Stock Connect Policy

Abstract

This paper investigates herding behavior between Chinese A-share and HK stock market based on Shanghai-Hong Kong Stock Connect. This research innovatively details the difference in herding behavior between two markets bidirectionally. By applying CCK model and quantile regression, we examine herding behavior between Chinese and HK stock market in asymmetric situations from the perspective of net capital flow of Shanghai-Hong Kong Stock Connect. Our findings suggest that the impact of HK share on A share’s herding behavior increases after Shanghai-Hong Kong Stock Connect starts trading. To some extent, the direction of net capital flow of Shanghai-Hong Kong Stock Connect acts as a powerful indicator for investors, which skillfully deflects Chinese stock market. Besides, the way in which HK’s stock market influences that of Chinese mainland has undergone a transformation.