A Study On The Synchronicity Of Stock Price In Chinese Stock Market

The synchronicity of return variation means that stock prices move in the same direction together, which implies that firm-specific information is not fully capitalized into stock prices. This phenomenon not only eliminates the difference in companies of sorts and weakens the economic role of prices that serve as signals for investment decisions, but also decreases the resource allocation efficiency of the stock market (see e.g., Wurgler, 2000; Morck et al., 2000, 2003, 2004; Jin and Myers, 2006).In Chinese security market, stock prices are highly correlated. In the findings of Morck, Yeung, and Yu (2000), the synchronicity of return variation in China is in the second place in the world which is only less than Poland's. And in the study of Jin and Myers (2006) which explore the stock markets of 40 countries, the co-movement of the stock price in China is the highest. Why the synchronicity of stock price co-movement for the Chinese market is so high? And what is the reason in nature? So far, there is less theory or positive research on it. This paper chooses public-held companies in China as research objects, and systematically analyzes the cause of formation of the synchronicity from the structure of investors, the information circumstance of companies and the institution building respectively. As a result, this paper gets some important findings just as follows:Firstly, the participancy of institutional investors has great effect on the co-movement of stock prices. The structure in Chinese stock market which is mainly made up of individual investors is one of the reasons for the high synchronicity of stock price.Secondly, the corporate transparency has great effect on the co-movement of stock prices. The weak quality of the information disclosure and low level of the corporate transparency is one of the reasons for the high synchronicity of stock price.Thirdly, the institution building in stock market has great effect on the co-movement of stock prices. The poor institutional environment in Chinese stock market is one of the reasons for the high synchronicity of stock price.This paper consists of seven chapters, and the main contents of each chapter are outlined as follows:Chapter 1 is the introduction, which briefly introduces the research background and issues, contents and framework, as well as the contributions of the paper.Chapter 2 is the literature review. First, the paper reviews the concept and the measurement method of the synchronicity of stock price. Second, based on the literatures, the paper reviews the economic effects of synchronicity from the information efficiency of price, the efficiency of economic function, and filtration mechanism of stock market. Finally, the paper reviews the literatures on the cause of formation of the synchronicity from the structure of investors, the information circumstance of companies and the institution building respectively.Chapter 3 introduces the institutional background related to Chinese security market and public-held companies. First, the paper analyses the status quo of the synchronicity of stock price in China. Through introducing 48 policy incidents, the paper examines the relation between the so-called"policy market"and the co-movement of stock price. With that, the paper introduces the existing condition about the structure of investors, corporate transparency and the institution building in Chinese stock market in detail.Chapter 4 investigates the relation between the information traders and the co-movement of stock price in China. The paper reviews the important literatures on institutional investors firstly. And base on them, the paper selects the institutional investors as information traders, and empirically tests the relation between the institutional investors and the synchronicity of stock price such as the following number of institutional investors, the institutional ownership, and the ratio between institutional investors and individual investors.Chapter 5 investigates the relation between the corporate transparency and the co-movement of stock price in China. The paper reviews the important literatures on transparency firstly. And base on that, the paper develops a set of corporate transparency index from two dimensions which are accounting information system and organizational structure complexity. Then, the paper empirically tests the relation between the index on corporate transparency and the synchronicity of stock price.Chapter 6 pays specific attentions to the role played by institution building in enhancing the function of firm-specific information. The paper introduces 6 law incidents which have great effect on the institution building of Chinese security market. Then the paper investigates whether the synchronicity of stock price changes greatly after the promulgation of these laws. Finally, the paper introduces the index of law protection as the agent of the development of the institution building, and examines the effect of the institution building on the co-movement of stock price.Chapter 7 sums up the research findings of the paper, including the research conclusions, suggestions, limitations, and the directions of future research.