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The capital market consequences of stock market liberalisation: Evidence from Mainland‐Hong Kong Stock Connect Programs in China

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  • Renhui Fu
  • Fang Gao
  • Yi Zhao

Abstract

We analyse the capital market consequences of stock market liberalisation in a quasi‐natural experiment setting, where Mainland‐Hong Kong Stock Connect Programs allow foreign investors to trade in the Chinese stock market. Utilising difference‐in‐differences estimations, we observe improved stock liquidity, driven by direct liquidity provision and indirect signals to domestic investors. Particularly notable are the effects on eligible stocks without previous exposure to foreign investors, characterised by high corporate transparency and investor protection. The resulting liquidity enhancements reduce equity costs, ultimately elevating firm value. In short, our study highlights the positive influence of stock market liberalisation on the capital market.

Suggested Citation

  • Renhui Fu & Fang Gao & Yi Zhao, 2024. "The capital market consequences of stock market liberalisation: Evidence from Mainland‐Hong Kong Stock Connect Programs in China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(4), pages 3275-3299, December.
    • Handle: RePEc:bla:acctfi:v:64:y:2024:i:4:p:3275-3299
    DOI: 10.1111/acfi.13251
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