Research On The Effectiveness Of China's Stock Market System

The system is a kind of rules and constrains that are used to regulate individual behavior.The main function of the system is to reduce uncertainty and transaction costs by providing effective information,which also forms incentives and constraints for economic agents.Hence,whether the system is effective is vital to those people who are involved in the system.The standardized development of the stock market plays a pivotal role in the development of modern economic society.In March 2001,China's stock-issuing system implemented the approval system;Then,in May 2014,the State Council issued the "Opinions on Further Promoting the Healthy Development of the Capital Market",which proposed the concept of high-level planning restructuring and promoted the reform of the registration system for stock issuance;Next,it is proposed by the Fourth Plenary Session of the 19 th CPC Central Committee proposed " to strengthen the construction of the capital market infrastructure" in November 2019.Finally,the newly revised "Securities Law of the People's Republic of China" is officially implemented in March 2020.From that time,the construction of China's stock market system has entered a critical period.Under this background,It has become more and more urgent to analyse the effectiveness of the stock market system,to find flaws in system design and implementation,and to build an efficient,reasonable system that is generally recognized and followed by relevant people.As a result,this paper selects the research on the effectiveness of China's stock market system as the topic to explore discussion.The paper uses a combination of qualitative and quantitative analysis to objectively analyze and evaluate the effectiveness of China's stock market system.Then,it would provide some effective suggestions for the enhancement of the stock market system.The main contents of this article are:First,it defines the effectiveness of the stock market system and analyzes therelevant basic theories of Institutional Economics.Since there are no scholars who have defined the effectiveness of the stock market system,this article draws on the understanding of the Institutional effectiveness of the Neo-institutional Politics,It includes two meanings about the effectiveness of the stock market system: one meaning is to understand it from the necessity,Which refers to the effectiveness of the system in the value sense,That can also be defined as the rationality of institutional arrangements in stock market;The other one is to understand it from the actuality,which refers to the effectiveness of the system in the sense of result.That is also means the efficiency of stock market system implementation.By analyzing the basic theories of new Institutional Economics such as system,transaction costs,system changes,and inclusive institutions,Two evaluation criteria for the effectiveness of the stock market system are formed.The first one is the effectiveness of necessity of the stock market system,which mainly evaluates the rationality of the stock market system,It focuses on the three dimensions: the universality of the stock market system,the effectiveness of the system's implementation mechanism and the binding force of the system on the participants.the second one is the actual effectiveness of the stock market system,which significantly evaluates the functional efficiency of the stock market system under the established system cost.Second,compare and analyze the Chinese stock market system and the American stock market system.Inducible institutional changes lead to the emergence of China's stock market system.While mandatory institutional changes promote the development of China's stock market system.In the development of China's stock market,with the improvement of related systems,the function of the stock market system are gradually developed from the original function and basic function to the combined function of the original function,basic function and derivative function.On the basis of elaborating the development of the American stock market system,it has discovered the advantages and disadvantages of China's stock market system construction through comparative analysis of the basic regulations and actual operating effects of the stock issuance system,delisting system,information disclosure system,investor protection system and other systems of China and the United States,it lays a good practical foundation for evaluating the effectiveness ofChina's stock market system.Third,analyze and evaluate the effectiveness of necessity of China's stock market system.It requires using qualitative to analysis methods whether the arrangements of China's stock market system's are rationality from three aspects.The evaluation criteria are namely the universality of the institutional arrangements of stock market,the effectiveness of the implementation mechanism of the stock market system,and the constraints of the stock market system on participating entities.Furthermore in the process of the central government's promote the regional stock market to the whole country,the Chinese stock market used it as the main place for the State-owned enterprise stock system reform.The government has become the "hidden guarantor" of listed companies and intermediary service agencies,The conflict between government dominance and market equilibrium,and between formal and informal institutions has led to a lack of stability and tolerance in the institutional arrangements of the stock market,and has not truly been “open,fair,and just”;the supervisory authority has misplaced supervision and supervision administrative methods and lack of regulatory and control mechanisms have led to inefficient implementation of the stock market system;frequent violations of listed companies,lack of integrity in intermediary service agencies,and deviations in investor behavior have led to soft constraints on the stock market system.Therefore,in terms of ought to be,the arrangement of the Chinese stock market system is unreasonable and the system is inefficient.Fourth,analyze and evaluate the actual effectiveness of China's stock market system.It uses quantitative analysis methods to evaluate the operating efficiency of the stock market system,which also can be defined as the efficiency of the basic and derivative functions of the stock market.For the analysis of the efficiency of the fund financing-investment function,it constructs the DEA model by selecting total amount of fund-raising,rate of return of investors,number of IPO companies,number of delisted companies,direct financing ratio,gross domestic product,market value of stocks in circulation,average turnover rate,increases in household savings deposits,etc.and the results showed that the overall efficiency of the Chinese stock market's financing-investment function was “weakly effective” and the investment function was missing.However,the efficiency of the fund-raising function after 2015 wasestimated to be “effective”,It illustrates that the direction of the reform is correct from 2015,and the efficiency of the fund-raising function has been greatly improved.The analysis of the efficiency of the capital pricing function includes two aspects: the stock issuance market and the stock trading market.The results show that the overall efficiency of the capital pricing function of the Chinese stock market is relatively low,and the return rates of three representative stock indexes such as the Shanghai Composite Index,Shenzhen Composite Index and GEM Composite Index exhibit mean avoidance characteristics.And the lack of pricing function;although the capital pricing function of the stock issuance market is inefficiency as a whole,from a staged perspective,the issuance pricing mechanism is increasingly reasonable,Additionally,the pricing efficiency is gradually improving,which further illustrates the rationality of the direction of China's stock market system construction.For the analysis of the efficiency of capital allocation function,a regression model based on the classic model of capital allocation efficiency is constructed with the net asset financing rate.It is defined as the explained variable and the return on net assets are the explanatory variable.By analyzing the efficiency of capital allocation in China's stock market from the two dimensions of industry and region,The results demonstrate that the capital allocation in China's stock market varies greatly between industries and regions.Capital failed to flow into high-remuneration industries or regions,but instead flowed to low-remuneration industry or region,which cause the capital can not be used effectively and the efficiency of capital allocation function is low.For the analysis of the functional efficiency of improving the corporate governance structure,the DEA model was constructed by selecting indicators such as equity structure,board governance,management incentives,information disclosure,and financial performance,etc.The results show that only 23 of the 188 listed companies have corporate governance efficiency are regarded as “effective”,accounting for 12.23%,While the stock market's function of improving corporate governance structure has not been fully utilized.For the analysis of the efficiency of the risk diversification function,the Va R method and GARCH model are used to measure the risk of the Shanghai and the Shenzhen 300 Index and compare it with the Standard & Poor's 500 Index.The results show that the daily Va R value of the CSI 300 Index is relatively high and volatile.It indicates that China's stock market bears higher risks and has aweak ability to diversify risks,which also means they have a weak ability to diversify risks and a lower efficiency of risk diversification.For the analysis of the efficiency of the information transmission function,it build a multivariate regression model which was constructed with the monthly return rate of the Shanghai Composite Index,the year-on-year growth rate of industrial added value,the change of CPI index,the year-on-year growth rate of total retail sales of consumer goods,the growth rate of imports,the growth rate of exports,the growth rate of M0,M1 growth rate and M2 growth rate,etc.The results make evidence that there is a certain correlation between the stock market and the macro economy.However,due to an insignificant Granger causality,the information transmission function of the stock market has not been fully utilized.Fifth,put forward some suggestions to improve the effectiveness of China's stock market system.Through qualitative and quantitative analysis,it can be seen that China's stock market system is inefficient from the perspective of actuality and necessity.As a consequent,it consists three main suggestions to improve the effectiveness of China's stock market system.To begin with,the changes of China Institutional in the stock market should shift from “government-oriented” to“market-oriented”,and the full implementation of the stock issuance registration system should be regarded as a breakthrough to carry the “market-oriented”institutional innovation.Next,form an external supervision mechanism at the national level and improve the implementation of the implementation mechanism of the stock market system within the whole society by repositioning the supervision function,constructing market-oriented securities.Furthermore,control the information disclosure violations of listed companies,strengthen the establishment of the integrity system of intermediary service agencies and foster rational investors to strengthen the binding force of the stock market system.