Dynamic Analysis of The Impact of Northbound Funds On A-Share Market Based on VAR And GARCH Models

Yaru Jiang; Cong Lin; Zhaofei Wang

doi:10.54097/535xp615

Authors

Yaru Jiang
Cong Lin
Zhaofei Wang

DOI:

https://doi.org/10.54097/535xp615

Keywords:

Northbound funds, A-share market, VAR model, GARCH model, Dynamic impact.

Abstract

1 With the deepening of China's capital market opening to the outside world, northbound funds as an important channel for foreign investors to enter the A-share market, its scale and influence are increasing. Based on the VAR model and GARCH model, this paper divides the development process of northbound funds into two stages: growth stage and expansion stage, and analyzes its impact on the return rate and volatility of A-share market. It is found that the impact of northbound funds on A-share market presents dynamic evolution characteristics: in the growth period, northbound funds flow has no significant impact on the return rate and volatility of A-share market; In the expansion period, northbound fund flow has A significant impact on the A-share market yield and volatility, and the net purchase of northbound funds has A positive impulse response of 1-9 days on the A-share market yield. This shows that northbound funds have become the "weather vane" of market sentiment, and its investment style has an important impact on the trend of the A-share market.

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