Date of Award

Spring 2024

Degree Name

Bachelor of Science (BS)

Advisor(s)

Yusif Simaan

Abstract

This research thesis investigates the financial impacts of the 2019 Hong Kong protests, analyzing three distinct sectors: equity markets, foreign exchange, and capital flows. Amidst the political turmoil that followed the proposal of the Extradition Bill, this study investigates the subsequent impacts of the social unrest on the financial landscape of Hong Kong. This thesis conducts an event study and a regression analysis to examine the comparative performance of the Hang Seng Composite Index (HSCI), representing Hong Kong’s equity markets, and the Morgan Stanley Capital International (MSCI) World Index, a global equity benchmark. This deviation correlated with the peak of the protests, highlighting a relative underperformance in the local market compared to global benchmarks. To understand the impact on the foreign exchange market, this study analyzed the value of the Hong Kong Dollar (HKD). First, the spread between the USD/HKD spot and three-month forward rates was used to assess market sentiment and expectations of HKD's future value amid political instability. The observed decrease in spread revealed investors’ expectations for the HKD to weaken significantly due to the political and economic turmoil. Second, a comparative analysis was conducted to compare the HKD's performance in relation to the SDR basket, a basket of major global currencies. The performance of the HKD against a diverse basket of currencies assessed its overall stability and resilience in the global currency market. This study found that the HKD exhibited less volatility and depreciated less than other major currencies. This suggests a level of resilience in the value of the currency.

Analyzing money flow within the Hong Kong stock market provides crucial insights into investor behavior during periods of heightened political instability. This examination of money flow was quantified by calculating the cumulative sum of the product of daily changes in the Hang Seng Composite Index (HSCI) returns and the corresponding trading volume (∑ (ΔReturnHSCI, t × VolumeHSCI, t)) T t=0. Positive values signify net inflows (indicating increased buying activity), while negative values indicate net outflows (reflecting increased selling activity). The analysis revealed no significant shifts in the magnitude or direction of capital flow within the Hong Kong market during the 2019 Hong Kong protests. Together, these analyses provide a comprehensive view of how the Hong Kong protests impacted financial markets. The findings from this study can contribute to a greater understanding of how social unrest can impact market responses and financial stability.

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