On Phenomenon Of "Policy Market" In China's Stock Market

Sharp and frequent fluctuation in China's stock market is one of its most remarkable characters, which, in great degrees, is caused by policies implemented by government. This paper, from a respective of institutional change, gives the reason why the 'policy market' comes into being, then analyzes its operating process and its evolving direction. Based on the above, reasonable suggestion for the development and improvement of the stock market in China is presented.Firstly, this paper gives a definition to the phenomenon of the policy market. Then, in the paper, a general form of the national utility function is founded. On the base of that, different values for variables in national utility functions according to differences of governments' behaviors in various time, are gifted. At the same time, the process of institutional changes, in which the government maximizes its own utility by changing financial arrangements while changes occur to variables affecting national behaviors and restricted conditions, is discussed. Then the reason for the formation of the policy market is obtained.In following sections, game theory is applied for the analysis to the operating process of the policy market. By introducing the utility function of investors, affection caused by both two sides of players, the government and investors, is analyzed.After then, analysis for the evolving direction of China's stock market is carried out. An unlimited repeated game is introduced for sake of discussing the possibility of eliminating the phenomenon of policy market in China. In the following, an extensive analysis for the evolving direction of China's stock market is presented.At last, this paper gives its conclusion that includes a summarization and some advice for the further development of China's stock market.