The Shanghai-Hong Kong Stock Connect program creates a large demand shock for connected stocks listed on the Shanghai Stock Exchange. Compared with unconnected stocks with similar firm characteristics, connected stocks in Shanghai experience value appreciation of 1.8% (US$23 billion) over the seven-day announcement window and significant increases in turnover and volatility after the announcement. Moreover, the value appreciation and increases in turnover and volatility are all significantly larger for stocks with higher speculative beta. Our findings support the theoretical prediction of Hong, Scheinkman, and Xiong (2006) that the demand elasticity of price increases with speculative trading.

Keywords: Demand shock; Heterogeneous beliefs; Short-sale constraints; Speculative beta; Market liberalization

JEL Classification: G11; G12; G15; G18