| The volatility of securities market is a research hot spot of securities market theory all through the ages. Specially in the young Chinese securities markets, where the anomalous volatility frequently arises, even to extent that there are waves running high one after another. The appearance of securities volatility inspires the researchers to probe these mysteries behind the Chinese securities markets volatility. However, most of the existing researches merely consider the volatility itself as "raw material" or "finished product", but not consider the "machinery" i.e. the microstructure of securities markets that gives rise to such volatility. This is an obvious defect as the securities markets microstructure often changes in China. Our research is trying to remedy this defect. We'll make a close examination on the relationship between the securities markets volatility and securities markets microstructure in China. With reference to a large amount of literature, and also based on financial market microstructure theory and the fundamental principles of modern financial theory, this research adopts the econometrics method, game theory, system engineering theory and so on to develop a fruitful theoretic discussion and empirical analysis on the relationship of Chinese securities markets volatility and microstructure. We obtain a lot of significant conclusions and substantial evidences for discovering the rightful interpretations. Through our original research, the fundamental conclusion is: generally, the market microstructure produces a significant effect on the volatility of Chinese securities markets. Hence, both researchers and practice workers should consider the possible effect of the underlying market microstructure while studying the securities market volatility or designing a trading mechanism. We have first of all carried on relatively complete discussion on the reasons of the Chinese securities markets volatility through macroscopic as well as microcosmic sides. Then we propose a relatively integrated information-transmission mechanism of the Chinese securities markets, which indicates the necessity to study the underlying microstructure. This mechanism also shows that the microstructure which has been looked upon as a "black box" by a lot of researchers for a long time actually provides the important potential reason for bringing about the market volatility. On this basis, we construct the framework of Chinese securities markets volatility's microcosmic movement. This framework clearly shows all sorts of constructive relations of Chinese securities markets microstructure. With this analysis framework, we study successively these effects of market microstructures such as securities price formation mechanism, securities market stabilization mechanism, information disclosure mechanism, clearance and settlement mechanism, and so on, where the relationship between the market volatility and the special trading mechanism of Shenzhen small and medium enterprise board, the anomaly volatility suspension mechanism, the reform of tick size and trading information disclosure mechanism of Chinese securities markets is first researched. When studying the securities price formation mechanism, we use the game theory model to show that there are different equilibrium conditions and volatility effects under different auction markets. By means of examining the volatility as shown by autoregressive conditional heteroskedasticity under different auction markets with non-parametric methods, we show that the volatility of periodic auction in market opening is significantly greater than that of continuous auction. In the same vein, we find that the new way of closing quotation decision in Shanghai stock market has no significant effect on the volatility in the market closing prices, but it affects significantly the opening quotation in the next day, and then gradually fades away along the trading day. We also consider the small and medium enterprise board, with the results showing that the open auction is probably not the best auction in the opening because it causes more volatility than the close auction does in the main board. But the periodic auction in the market closing system of the small and medium enterprise board has a very good steady marketfunction and a price discovery capacity. While studying the securities market stabilization mechanism through establishing different models, we find that not only the volatility of the indexes but also that of the ordinary stocks and ST stocks, in a long period of time, can be decreased and not increased significantly by the price limit. And there was no significant over-reaction by the price limit. Moreover, the research on stock shows that the chasing-growth trend is more seen than the driving-drop trend in the market. Our research shows that the anomaly volatility suspension mechanism has no function of stabilizing market because the volatility seems increased and not decreased when the market suspension is ended. However, the smaller tick size in Chinese securities markets can bring about a less significant volatility and a more significant liquidity, but have a minus effect on trading volume. When studying the information disclosure and clearance & settlement mechanism, we find that the extension of pre-trading information disclosure scope in Chinese securities markets can promote significantly the market stabilization in a short term, but over a long period of time, the effect is not significant. The result after clearance & settlement mechanism research shows that the T+1 system has much more stabilizing market function than the T+0 system in the long run. This paper finally builds a forecasting volatility model for the Chinese securities market by first introducing a microstructure variable. The forecasting results show that the forecasting will be more accurate after considering the microstructure. So, it can be concluded that the microstructure in securities market is nearly a key variable to influence securities market volatility.
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