Research On The Cause And Effect Of The Government's Interference With Stock Market In China

Since the building of Shanghai Stock Exchange and Shenzhen Stock Exchange, China securities market, which has made a big progress in over ten years, has considerably contributed to the deepening of the State-owned Enterprises' reform and the establishment of a socialist market economy. However, the securities markets of our country are typical Emerging markets, government may intervene in the stock market at will frequently. Up to now, a group of people don't reach consensus about government intervention.The study focuses on interference with stock market of government. We are interested in the cause, effect and trend of the government's interference. We hope our conclusion can be reference to government's policy decision. Regulation is governmental interference in the otherwise natural economic development. The existence of industrial regulation has long been accepted in the economic literature. In all economic theories of regulation, two of them are more mature and popular than others, it include "The Public Interest Theory of Regulation" and "The Capture Theory of Regulation". Through theory analyzing and comparing, we can make a good foundations of establishing theories about securities market regulation. Then we describe Chinese securities supervision authorities and special environments of system. Based on these facts, we can build a simple and general dynamic model. In the model government servants are also considered as economic-men. In order to maximize the likelihood of their reelection, the regulator takes into account economic welfare of all voting members of the society. So the regulator imposes more stringent regulation on companies and industries where productivity grows faster than the long-run rate. The regulator, in turn, deregulates the companies and industries in which the productivity growth falls below the long-run rate. As a consequence, regulation turns to be a short-run Income-smoothing tool. The emphasis of the paper is that empirical research the model are applicable for the regulations in Chinese finance market or not. By two statistical methods, event study and GARCH model, we study the policy effects in the Chinese stock markets, and the result is consistent with the theory. Last Chapter we get the policy suggestions.