| Abstract: | Based on the interaction between the trading mechanism and heterogeneous investors' behavior, using Shanghai stocks data, this paper studies the impact of the Shanghai-Hong Kong stock connect program on the volatility and liquidity of the stock market. The result shows that investors with long-term value investment philosophy carry international market risk to the A-share market, which causes excessive panic among medium and small investors. In the absence of derivatives for effectively avoiding risks, price volatility increases. With the increase of the investment risks, the costs of domestic institutional investors'frequent trading out of excessive speculation increase and the investors who are attracted by the international mature capital markets escape from the mainland. The medium and small investors are gradually becoming more prudent, which leads to the decrease of market liquidity. |
