A Study on the Linkage of Shanghai, Shenzhen, and Hong Kong Stock Markets in the Context of the COVID-19

Abstract

— In this paper, we use the representative stock indices of Shanghai, Shenzhen, and Hongkong as the research objects and the daily closing prices of stock indices from January 2, 2019, to January 20, 2021, as the sample data, and employ Granger causality tests, impulse response function analysis and the construction of DCC-GARCH models to empirically study the dynamics of the linkage between Shanghai, Shenzhen, and Hong Kong markets in the context of the occurrence of the COVID-19. The findings show that, first, the mainland stock market returns are affected by the historical returns of the Hong Kong market. Second, the occurrence of the COVID-19 strengthens the Mainland-Hong Kong stock market linkage effect and prolonged the shock. Third, the occurrence of the COVID-19 increases the volatility correlation between Shanghai and Hong Kong markets and decreases the volatility correlation between Shenzhen and Hong Kong markets.