Policy Effects In The Abnormal Volatility Of Stock Market In China

Volatility is the necessary phenomenon of stock market, and takes on deflection, randomicity, jump, periodicity and psychology, and abnormal volatility is dangerous. The history of stock market in China indicates that it is more frequent and violent than the mature ones in some countries, which affects market efficiency; therefore, it is significative in theories and in practices that abnormal volatility is distinguished and its policy reason is searched.Institution defects exists in policy of stock market in China, therefore policy effects is obvious and market efficiency is low, and policy gaming and dependence exists in the market. The reasons of the policy effects are generalized as follows: (1) stock market is planned by the government; (2) the government is the largest shareholder of the list companies; (3) the government guarantees for the market potentially; and (4) the government plays dual roles in the market.The relationship between the abnormal volatility and policy in Chinese stock market are studied by two statistical methods and the results indicate that the main reason of abnormal volatility is policy effect.The policy market deforms investment rules and price signals, which affects market efficiency in resource allocation, increases investment risk, furthers irregularities and reduces management authorities. As the supervisor and manager, the government should intervene the market moderately, follows the prudent principle, keep the relative stability of policy, supervise the market according to law, avoid administrative intervening, set up dynamic supervising mechanism; Meanwhile stock market should be located accurately, industry self-discipline and information disclosure mechanism should be strengthened, and derivative tools should be impelled in appropriate time.