Institutional Arrangements Based On The Chinese Stock Market Behavior Of Financial Research

In this paper, by introducing institutional factors of Chinese stock market into behavioral finance, an analysis frame is established to study how institutions and institution transfer have their influence on the investors' cognitive and trading behavior. A conclusion is drawn that besides limited rationality, improper institutional arrangement can arouse cognitive and trading behavior, which is named "institution -caused" cognitive and behavior bias. Such a bias twists investors' psychology and behavior more severely than limited rationality -caused bias. China stock market shares the representative characteristic of transfer economy, and noise policy intervention, institution shortage and institution superabundance exist simultaneously. Representative institutions in china stock market such as noise policy intervention, market segmentation, market entry obstacle, ban of short sell, imperfect exit mechanism and state-owned share arrangement are chosen to analyze their influence on investors' psychology and behavior. The study shows that these institutional phenomenons send noise to the market and lead to an "institution -caused" cognitive and behavior bias, and further more have a long-time influence on the stock price. This conclusion can give a new explanation of noise trader' domination and price over- fluctuation in China stock market. Meanwhile, our study shows that under condition of restriction of capital flow, arbitrage can be realized by emotion conduction and psychological comparison, which is used to explain why after opening of B share to mainland investors, B share and A share become cointegrate. Besides, a wrong institution, such as ban of short sell can induce investors to degenerate: from an information trader to a noise trader, which can explain the formation of strong speculation in China stock market. On the other hand , under some condition, such as market opening , a noise trader can evolve as a information trader. In the last chapter three kinds of investors bias are given: first kind refers to limited rationality, the second to poly-culture and the third to institution arrangement.Our study has rich policy meanings. First, investors' psychological and behavioral reaction should be considered into institution supply. A wrong institutional arrangement is kind of noise and can lead to over- fluctuation of the stock market. Second, psychological adaptability of investors should be introduced into institution evolution.Too fast institution change can lead to market chaos. Third, institution transfer should not rest on government only, grass- rooted wisdom is also a necessity.