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- Title
Is Foreign Capital Smarter? Multifractal Evidence from the Shanghai–Hong Kong Stock Connect Program.
- Authors
Ruan, Qingsong; Wang, Zilin; Liu, Jing; Lv, Dayong
- Abstract
This paper investigates whether foreign capital is smarter money using multifractal cross-correlation analysis (MFCCA) and nonlinear Granger Causality test. Using multifractal detrended fluctuation analysis (MF-DFA) method, we find that time series of stock returns, foreign-capital inflow from Shanghai–Hong Kong Stock Connect (SHKSC), and domestic-capital flow (proxied by margin-trading activities capital) exhibit strong multifractality. In addition, MFCCA results show that there exists a strong persistent cross-correlation between stock returns and foreign-capital inflow, but anti-persistent cross-correlation between stock returns and domestic-capital flow. Moreover, using nonlinear Granger Causality test, we find that foreign-capital inflow is the granger cause of stock returns. Our findings provide empirical evidence that foreign-capital inflow is positively associated with future stock returns, i.e., foreign capital is smarter money.
- Subjects
SHANGHAI (China); HONG Kong (China); FOREIGN investments; GRANGER causality test; FUTURES; MULTIFRACTALS; VECTOR error-correction models; EXEMPLARY damages; TIME series analysis
- Publication
Fluctuation & Noise Letters, 2020, Vol 19, Issue 4, pN.PAG
- ISSN
0219-4775
- Publication type
Article
- DOI
10.1142/S0219477520500479