Research On Price Formation Mechanisms Of Security Market In China

In recent years, with the rapid development of technology, globalization of investment, liberalization of supervision and management, integration of the global markets, security market has entered an era full of unprecedented competence. After more than ten years' high-speed advancement, security market in China has already taken shape, exerting influence on the allocation of resources gradually. However, in the operation of security market, the deviation of the stock price from the capital's real value occurs at high frequency and even leads to the serious price manipulations, which lowers the market's price-discovering ability and at the same time brings harmful influence on the national economical development. The reasons are that on the one hand, price formation mechanisms in China cannot meet the demands of rapid development of the market for its imperfect points, on the other hand, with the ceaseless increase of market capacity and investment company, trading mechanisms in existence should be enriched and perfected, individuated demands of the market fulfilled and self competitive ability exalted. To solve the above problems, it is needed to introduce new price formation mechanisms to security market in China.It is very important to understand the relationship between price formation mechanisms and security price behavior both in theory and in practice. This paper has a balanced analysis of securities prices which are under different trading mechanisms by using game theory under information asymmetry on the basis of security market microstructure. Three price-discovering models are created. They are call auction mechanisms, continuous auction mechanisms, market maker mechanisms respectively. The market performance under different price formation mechanisms is also discussed. Meanwhile, this paper carries out empirical tests on the liquidity of securities market under call auction mechanisms and continuous auction mechanisms respectively. Then it analyses the problems occurring in price formation mechanisms and puts forward suggestions of betterment. In the paper, equilibrium prices of security market under conditions of auction mechanisms and market maker mechanisms respectively which are inferred in the case of information asymmetry show that different price formation mechanisms form different reflections of the capital's real value. Comparisons between market performance under auction mechanisms and that under market maker mechanisms are made in terms of liquidity, stability, efficiency and transparency. The comparative results show that certain price formation mechanics integrated with specific market environment can affect market performance. The results of the test that is used to verify the liquidity of security market in China indicate that current price formation mechanics can provide the securities market with better liquidity. But the fixation of the minimum changing price lowers the liquidity of the market factitiously and close call auction mechanisms result in increased price fluctuation and price manipulation. Through the analysis on the competitive strategy of securities market, the objects and principles of the design of price formation mechanisms are established. Under the guide of such objects and principles, aiming to help develop securities market in China, this paper proposes security price formation mechanisms in which auction market is given priority to with competitive market maker as an enrichment. Enlightening suggestions on policy design under the mechanisms are also provided.