A Theoretic Analysis Of Investor Protection

In the version of securities investor structure, this dissertation focuses on how to protect investorsin emerging market, and how the protection itself may help build a fair, efficient and transparentsecurities market, so as to enhance the efficiency of emerging market and fulfil it's function. Theeconomics analysis consists of three parts: First, the analysis of investor behavior and investorstructure;Second, the implication, target and found of investor protection;the third, how toimprove the investor protection system.In chapter 1, I illustrate the concept of securities investor and review the relative theoriesconnected with investor behavior. I present the features of the emerging securities market, which isvery different from the developed market. Based on the difference between institution investor andindividual investor, I define the small investor as that investor: small amount of funds, highaverage cost of information, inferior strength in asymmetrical information and no influence onprice setting. I also present the features of that small investor 's behavior and their identical risk. Imake clear the object of my study;the normal investors aimed at profit maximizationIn chapter 2, I first define the investor protection as: In order of keep the normal order of securitiesmarket, prevent the investors from being harmed by the market failure, the government and it'sinstitutions intervene and supervise the abnormal activities in securities market. Thus I point outthat the problem of investor protection belongs to the field of securities regulation. After that, Iillustrate my opinion of the implication, target and theoretical found of investor protection. Then Ipoint out that only a fair, efficient and transparent securities market can protect investors entirely.In order to improve the investor protection, the government regulation must consummateinformation disclosure, abstain insider trading and manipulation, and construct investor insurancesystem as well.Chapter 3 is mainly discussing information disclosure. By introducing two modals of informationreflection in securities market, I reveal the relationship between the information and marketefficiency. Then I discuss the relationship between information and information disclosure fromfour versions: information usage, disclosure quality, and disclosure technology and disclosurechannel. I retrospect the discussion of two disclosure systems: voluntary disclosure Vs mandatorydisclosure. In view of the practical information disclosure system all consists of voluntarydisclosure and mandatory one, I present the following idea. According the institution design theory,the invisible hand and individual ration can not replace mandatory disclosure in emerging market.In order to improve the disclosure efficiency, the government as principal must satisfy the publiccompanies (the agents)'s incentive compatibility constraint, must set serious punish policies toprevent information abuse caused by the public companies. In brief, the securities regulation canprotect the investors by providing them with disclosure transparency.Chapter 4 is talking about regulation on insider trading, which is the most complex task insecurities regulation. I first give definition to insider, inside-information and insider behavior.Then given the different three style of market efficiency, I analyze the different role that insidertrading play in different market. I analyze why insider trading must be forbidden from both thelaw level and the economics level. From the law, insider trading must be forbidden according tothe fiduciary duty and misappropriation theory, from the economics, insider trading is forbidden soas to improve market efficiency and keep public confidence. Concerning with the small investorprotection, the most effective way is to ensure civil compensation, so as to prevent them frombeing expropriated by the insiders.Manipulation is discussed in chapter 5. The manipulation in securities market can be divided intotwo parts, one is direct manipulation and another is indirect manipulation. Using the marketstructure theory, we can make clear the nature of price manipulation is monopolization, whichdestroy free competition in securities market. Depend on their fund scale and informationadvantage, the manipulator may control the price and the amount of deal, thus cause the risk andlost endured by the small investors. I also discuss another important problem in companygovernance, that is the expropriation of small shareholder by the controlled shareholder and themanager. In emerging market, manipulation and expropriation are serious problems. To solvethose problems and protect small investors, the legislation and property system must be allimproved.As the last part, chapter 6 is concerned with the insurance system of small investors. With theinternalization of securities market and the utilization of information technology, the risk andincome, as well as the investor behavior will change accordingly. The more open the emergingmarket is, the more exciting market competition will be. Thus the investor protection shall beimproved relatively. From drawing on the experience of the American's small investor protectionsystem, I construct the frame of small investor protection system in China. I also point out that thesecurities insurance not only protects the small investors, but also provides the securities marketwith the motivation of innovating, and the perquisites of disregulation as well.