A Research On The Effects Of Stabilizing Mechanism On The Asset Price Behavior

In this thesis, the effects of stabilizing mechanism on the asset price behavior is studied by the means of theoretical analysis and empirical research in Chinese stock market from the qualitative and quantitative aspects. At the beginning, the stabilizing mechanism was categorized to review and summarize the fruits of theories of stabilizing mechanisms. Based on the review, the principles of effects of stabilizing mechanism on asset price were analyzed in detail to support the results of following empirical research. Because of the unavailability of the data and characteristic of Chinese Trading Halt, Much emphasis was put on Price Limit in empirical research. With the adoption of AR(6)-GARCH(2,2)model and daily five-minute data, the first empirical research studied the relationship between Price Limits and volatility, and the results verified the existence of Magnet Effect in Price Limits of Chinese stock market which caused the increasing market volatility. In order to demonstrate the relationship between Price Limits and Market Liquidity, we employed the event study method and adopted different liquidity proxy in the second empirical research, which indicated that Price Limits improved the market liquidity and promoted the price discovery and market efficiency in domestic stock market. At last, we briefly have a comparison research on the Trading halt between foreign and Chinese Stock market.This thesis finally comes to the conclusions that the stabilizing mechanism has negative and positive effects on the asset price behavior. So the stabilizing mechanism has been intensively discussed by academic and practitioners. To generalize the results of the empirical research, Price Limit has magnet effect in Chinese stock market; on the other hand, it can also improve the liquidity and efficiency of the market. Therefore, under the present stage of Chinese stock market, the Price Limits policy should be insisted on and Asymmetrical Price Limits can be performed for the elimination of the magnet effect. At the same time, Chinese stock market should improve the rules of trading halt so that it can disclose more information for investors.