Asymmetric Spillover Effects Between Shanghai-Hong Kong Stock Connect Capital Flows and Stock Market Volatility: A Dynamic Analysis Based on Investor Sentiment

We employ the SV-TVP-SVAR model to explore the asymmetric spillover effects between Shanghai-Hong Kong Stock Connect capital flows and stock market volatility, as well as the role of investor sentiment. Our findings reveal significant asymmetric spillover effects between Shanghai-Hong Kong Stock Connect capital flows and mainland China stock market volatility, with mainland investors’ sentiment playing a moderating role. Additionally, the first legal case of cross-border manipulation of the Shanghai-Hong Kong Stock Connect has caused mainland investors to distrust the mechanism, subsequently leading to a decline in the mainland stock market index. The increase in the daily limit of Shanghai-Hong Kong Stock Connect has not alleviated mainland investors’ concerns about cross-border capital flow risks, but instead, has led to a negative impulse response of the mainland stock market index to the net capital inflows through Shanghai-Hong Kong Stock Connect. JEL Classification: G15, F32, G14.