Sectoral Linkages in China’s A-Share Market: Evidence from the RCEP Enforcement

Abstract

This paper aims to examine how the Regional Comprehensive Economic Partnership (RCEP) impacts China’s A-share market. This analysis investigates how industry portfolios co-move in terms of daily returns across different sectors such as Machine & Equipment, Textiles & Apparel, Utilities, Telecom Services… An event-study approach is employed in this study, focusing on the 60 trading days before (pre-) and after (post-) official enforcement of RCEP. Sectoral Linkage indicators, including Pearson correlation matrices and Exponentially Weighted Moving Average (EWMA) model are established. The evidence shows that after enforcement of RCEP policy, the absolute correlations rise dramatically, however in the relative perspective the correlations increase more rapidly in the domestic demand-oriented industries rather than the export-oriented / supply-chain industries (Δ = −0.147) . Also, the effect dissipates in short term as in trading days (80), the numeric value of Δ decreases.To move from observation to causal inference, a Difference-indifferences (DID) model is applied. This method compares the change in sectoral return linkage between treatment sector and control sector pairs preceding and following RCEP enforcement to attribute the shifts to policy shock. This analysis contributes to the understanding of how regional trade reshapes domestic share markets, providing references to investors in terms of optimizing stock allocation and regulators in designing balance policies.