Research on the Impact of Capital Market Opening on Idiosyncratic Stock Price Volatility

Abstract

Based on data from the Shanghai and Shenzhen Stock Connect programs spanning 2016 to 2024, this paper takes the inclusion of A-shares in the MSCI index as an exogenous policy shock and employs a Difference-in-Differences approach to examine the impact of capital market opening on idiosyncratic stock price volatility. The results show that MSCI inclusion significantly reduces the idiosyncratic volatility of constituent stocks, with this effect being more pronounced in state-owned enterprises and exhibiting a distinct regional gradient of "central > eastern > western" China. Mechanism tests indicate that improved information transparency serves as the core transmission channel. This study provides new empirical evidence for understanding the micro-level stabilizing effects of emerging market liberalization.