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The time-varying interaction of northbound capital flows and stock market performance in China

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  • He, Yun
  • Li, Wei
  • Tan, Xiaofen
  • Wang, Yufan

Abstract

This study employs the SV-TVP-SVAR model to investigate the dynamic interactions between northbound capital and stock market performance in China, highlighting the time-varying statistical relationships. The findings reveal that the influence of market returns on northbound capital is predominantly short-term, exhibiting negative feedback, which helps stabilize the market during periods of extreme volatility. However, during market reversals, northbound capital shows positive feedback, correlating with improving stock returns. Regarding predictability, while northbound capital provides some predictive power for stock returns, this influence diminishes quickly. The study further notes that retail investors tend to imitate the high-frequency trading patterns of northbound capital.

Suggested Citation

  • He, Yun & Li, Wei & Tan, Xiaofen & Wang, Yufan, 2024. "The time-varying interaction of northbound capital flows and stock market performance in China," Finance Research Letters, Elsevier, vol. 69(PA).
    • Handle: RePEc:eee:finlet:v:69:y:2024:i:pa:s1544612324011061
    DOI: 10.1016/j.frl.2024.106076
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    References listed on IDEAS

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    More about this item

    Keywords

    Northbound capital; Market return; Time-varying trading pattern; SV-TVP-SVAR model;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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