The Impact of Shanghai-Hong Kong Stock Connect on the Effectiveness of Price Limits in the Chinese Stock Market

Launched in 2014, the Shanghai-Hong Kong Stock Connect (SHSC) is the first mutual access channel between the Chinese and Hong Kong equity markets. The scheme allows Hong Kong and international investors to purchase eligible Shanghai-listed shares, while at the same time permitting eligible Chinese investors to purchase eligible Hong Kong-listed shares. This paper aims to examine the impact of the scheme on the effectiveness of the price limit rule, which is only imposed in China but not in Hong Kong. Results show that the scheme alleviates the delayed price discovery problem caused by price limits but has no significant effect on the problems of volatility spillover and trading interference.