A Study On Volatility Of Stock Price In Chinese Stock Market

Chinese stock price has big volatility since Chinese stock market was established, the straightforward show that Chinese stock market has experienced several bubbles and crashes.Frequent abnormal volatility of stock price not only seriously influence the health and stability of Chinese stock market but also hindering the development of economic. To study the formation mechanism of the stock price volatility of Chinese stock market, sought a way to reduce the volatility of stock price, stimulating Chinese economy to grow healthily, have become an urgent problem need for deepen study by modern academia. Information transparency and corporate governance structure are two important factors which impact stock price knowned by academia.The higher transparency of information can reduce the degree of asymmetric information in the stock market, decrease transaction costs which improve the operating efficiency of the stock market, improve the efficiency of allocating resource of the stock market, and stimulate economic growth. Many scholars have studied on information transparency and the effect of information transparency on the stock price behavior Since 1990s. However, most of the foreign researches are based on the institutional environment for the mature stock markets in the west, the institutional environment of Chinese stock market are great differences from the mature stock markets in the West because of its special development course. Until now, most study on the relationship between information transparency and stock price behavior is empirical research in China, and most of them are about the synchronicity of stock price, the theoretical research is still blank.The ownership structure are the outset and core of corporate governance,it is made up of equity structure, equity concentration, degree of ownership balance and the degree of separation between control rights and cash flow rights etc. The tunneling behavior of the largest shareholder to the listed company is one of the important factors for ownership structure affects the company’s performance and further to affect the company’s stock price. The tunneling of the largest shareholder is influenced by the share holding proportion of the largest shareholder of the listed company, the ratio of control rights of the largest shareholder and the degree of ownership balance etc. The most of the listed companies in China was restructured by the public companies formerly in order to service for the restructuring of the public companies under the specific institutional arrangements. Not a few of the public listed companies have concentrated ownership structure and are relatively or absolutely controlled by country in order to maintain the dominant position of the public economy, which is significantly different with the dispersed ownership structure widespread in mature stock markets. So combining the features of Chinese listed companies,research the mechanism of ownership structure affect on the stock price volatility rate is more important both theoretically and practicallyFirstly, the paper constructed the theoretical model of stock price’s behavior based on Frankel (2008) and Lee and Liu’s (2011) analytical framework, and the model was numerically simulated to explain the mechanism of information transparency affect on the stock price volatility rate, which combined the institutional environment of Chinese stock market’s short-sales constraints before 2010 and introduced the indicator of information transparency which was used by Jin and Myers (2006). The results showed that:the stock price volatility monotonically decreases with the transparency of information. The short-sale constraint of Chinese stock market increase the volatility of stock price only,it does not change the trend of the volatility of stock price changes with the information transparency.Secondly, the paper constructed the theoretical model of stock price’s behavior combined the characteristics of ownership structure of Chinese listed company, which is based on Frankel (2008) and Lee and Liu’s (2011) analytical framework and the assumption that the controlling shareholder would seize the revenue of listed company when the macroeconomic situation is good, and the model was numerically simulated to study the affect of ownership structure(main concern ownership of controlling shareholder and the degree of ownership balance) of Chinese listed companies on the volatility rate of stock price. The results showed that:the volatility rate of stock price increases with the ownership of the controlling shareholder of listed company first, until a critical value is reached, then the volatility rate of stock price decreases with the ownership of the controlling shareholder of listed company; The stock price volatility rate is largest when the ownership of controlling shareholder is about 44%; The volatility rate of stock price monotonically decreases with the degree of ownership balance of listed company; The short-sale constraint of Chinese stock market increase the volatility of stock price only,it does not change the trend of the volatility of stock price changes with the ownership structure. This shows that the stock market would more stability when the ownership of the controlling shareholder is higher or lower; improve the degree of ownership balance and implement short-sales mechanism can enhance the stability of the stock market.Lastly, the paper empirical researched the relationship between information transparency, ownership structure and stock price volatility,and got the same result with the theoretical research.This showed that the theoretical model the paper constructed about information transparency,ownership structure and stock price volatility is reasonable. This paper also analysised the impact of short-sales mechanism on the stock price volatility rate by setting different dummy variables about before and after of the implementation of short-sales mechanism,regressed use the data before and after of the implementation of short-sales mechanism respectively, and got the same result with the theoretical research also.