Quantifying the Impact of the November 2014 Shanghai-Hong Kong Stock Connect

The November 2014 Shanghai-Hong Kong Stock Connect represented an important
step in China’s capital account liberalization, allowing relatively free movement of
investor funds between the two markets for the first time. We offer a quantification of the
effects of the new program, examining Northbound and Southbound flows of funds over
the first two years of the Stock Connect. While controlling for other sentiment and
liquidity effects, we test how these flows may have affected the extent of the premium
seen for local A-share listings in Shanghai relative to the prices accruing to the same
companies in Hong Kong market trading.