Behavioral Finance Analysis On Cutting Down State-owned Shares, Transformation Of Price-setting Mode And Fluctuation Of Share Prices

The most distinguishing feature of China's stock market is the division of shares, which, specifically means stocks of a corporate fall into three categories, respectively state-owned shares, corporate-owned shares and circulating shares, among which the first category and the second one cannot circulate in the market. This system separates the stock market, distorts the behaviors of the governments, and also distorts the behavioral mode of the investors. Thus it has become the source of various problems in China's stock market and also the largest barrier in perfecting the functions of the stock market.This thesis employs the theory of Behavioral Finance to illustrate the relationship between cutting down the state-owned shares, transformation of investors' price-setting mode and the fluctuation of share prices. Firstly, through analysis of investors' psychology and the changes of their behavioral modes before and after the cutting down the state-owned shares, this thesis explores the true reason why the reduction of state-owned shares could lead to the slump of share prices— transformation of investors' price-setting mode. Secondly, this thesis adopts theories of Cognitive Psychology and Experimental Psychology to explain transformation of investors' price-setting mode, and proves those explanations with real data. Thirdly, through employing the structural leap theory in Econometrics, this paper demonstrates that the issue of cutting down state-owned shares caused structural leap of the data growing process (DGP) of share prices. At last, based on the hereinbefore discussion of the reasons why cutting down the state-owned shares always ends in failures, it provides some proper suggestions: to cancel government's indirect guarantee to the stock market, and issue policies to solve the problem at the time when investors have accepted the reality of full-circulation.There are two innovative points in this thesis: Firstly, employing theories of Behavioral Finance to explain the reasons why investors set wrong prices of the shares;Secondly, adopting quantitative and Econometrical analysis to prove our explanation of why cutting down the state-owned shares leads to a slump of share prices-transformation of investors' price-setting mode.