The Impact of China’s Capital Market Opening Up to the Domestic Stock Idiosyncratic Risk

Abstract

Abstract In this paper we studied impact of an exogenous event that represents China’s capital market opening up policy: the “A-share inclusion in the MSCI index” for China’s domestic Stock assets. By constructing the Diff in Diff (DID) model, it is found that event have significantly reduce the idiosyncratic risk of the stocks that have been included into the index, which proved that the overall advantages of the capital market opening up policy outweigh the disadvantages. Keywords: Capital market opening up, Idiosyncratic risk, Liquidity.