Abstract: The main cause of stock market segmentation is various institutional obstacles, and the Shanghai-Hong Kong Stock Connect launched by China's securities regulatory authorities is essentially an institutional arrangement to reduce market segmentation. Although there has been a long-term stable equilibrium relationship between the two markets after the opening of the Shanghai-Hong Kong Stock Connect, the price guidance relationship and time-varying correlation coefficient of the two markets have not improved significantly, or even decreased slightly, indicating that the degree of integration between the two cities has not improved, and the degree of market segmentation has not decreased. At the same time, this also shows that in the case of a large gap in the level of market development and other constraints, relying only on the elimination of a certain institutional barrier may not achieve the desired effect. The most direct reason for the slight divergence between the current trend of the two markets is mainly the asymmetric flow of funds between Shanghai and Hong Kong.
Keyword: Shanghai-Hong Kong Stock Connect; institutional barriers; Market segmentation; integration