The Study On The Influcing Factors Of China’s Stock Market Volatility

Finance is the lifeblood of the economic development and important support. As one of the most important parts of the financial system, stock market plays an irreplaceable role on expanding the financing channels, promoting the capital formation, optimizing the allocation of resources, dispersed the market risk, etc., becoming an important platform that supports sustainable and healthy development for economy and society. But stock market has obvious characteristics, such as volatility, complexity and uncertainty, moderate share price volatility is beneficial to increase activity in the market and increase market liquidity, while severe frequent fluctuations will not only disrupt the market price discovery and the resource allocation function seriously, but also affect the normal operation of the macro economy. Therefore, studying factors that affecting stock market volatility and putting forward policy suggestions on related issues has great significance on maintaining the stable operation of financial markets and keeping stable and healthy development of macro economy.China’s stock market has the characteristics of "emerging and retracking" and big volatility. Looking from its development history and realistic characteristics, factors that affecting the fluctuation is complicated. The most two important factors are macro-economy policy and micro-investment behavior. Macro-economy policy has effect on the economic environment, market liquidity and investor expectations from different level, then leading the volatility of stock market. However, the effect of micro-investment behavior is more directly, on one hand, investors’ appetite for risk and investment behavior will affect the trading prices of related assets directly; on the other hand, risk can transfer to other markets through the investors’ behavior widespread. This article is carried on research mainly through to the various financial policies, market participants’ behavior and the relationship between stock index, determining the effects of related factors on the stock market volatility characteristics, and exploring the measures of abnormal fluctuations in China’s stock market and policy recommendations deeply in combination with empirical research results. This paper firstly reviews the literatures of scholars at home and abroad in this research field, and gives theoretical foundation about this paper, some literatures provides motivation on the methodology of the empirical study. Then this paper makes studies on the relationship between policy announcement and the volatility of stock market with ESM. From implementation of the subject of financial policy, purpose and property, interest rate policy announcement and statutory reserve ratio policy announcement that effect on stock market is the derivative effect, which has indirect characteristics; and the policies that to the stock market directly of China Securities Regulatory Commission are the direct policies and have the characteristics of directness. This paper is studied on relationship between the two types of financial policy and stock market volatility respectively by using event analysis method. Meanwhile, based on the results, this paper re-arranges the index return by using indexation to control interest rate policy, legal deposit reserve and the securities and policy announcement and get a new time series data for the SVAR model to analysis the effect of continuity policy changing on the volatility. On the aspect of Micro investment behavior, this paper makes studies on the effect of the behavior changing of Institutional investors and individual investors with panel data. In order to show more confidence conclusions, this paper divides the institutional investors into mutual fund, Social Security Fund and other funds, and studies their effect on stock market volatility separately. Meanwhile, this paper provides the evidence of the robustness of the results and the interaction influence between institutional investors and stock market volatility.The results show that macro-economy policy changing has great impact on stock market volatility and the expectation is the most important intermediary. The paper finds that the indirect policy announcement has more great impact on stock market volatility than direct one and the effect of continuity polices is robust and stationary. On the aspect of Micro investment behavior, this paper shows that the investor behavior has different effects on the volatility when the market is in different cycles, and this conclusion can be also indicated after dividing the. institutional investors into different parts. At last, following the conclusions, this paper provides the policy suggestions on the aspects of perfecting policy cooperation mechanism, improving market supervision system, completing the market system construction, strengthening institutional investors and increasing the investors’ education and protection.