2023/12/10 by Binzhao Lin, Bo Yu, Wentao Hu
Economics, Econometrics and Finance · Business, Management and Accounting · #Credit Risk and Financial Regulations #Banking stability, regulation, efficiency #Corporate Finance and Governance
paper · doi:10.1080/00036846.2023.2290591
As a crucial component of financial opening, stock market liberalization is a vital measure for China to advance market-oriented and open-oriented reforms. However, effective risk prevention and control must be in place as a prerequisite. Examining the ‘Mainland-Hong Kong Stock Connect’ program as a quasi-natural experiment, this study explores the mechanism through which this stock market liberalization policy affects stock tail systemic risk using a time-varying Difference-in-Differences (DID) model. The findings indicate that: (1) The ‘Mainland-Hong Kong Stock Connect’ program significantly reduces stock tail systemic risk in both Shanghai and Shenzhen stock markets. (2) The key to risk reduction lies in enhancing information transparency, corporate governance, and stock liquidity. (3) The risk mitigation effect of this policy is particularly pronounced in regions with weaker investor protection.