The Adverse Selection Behavior On China's Securities Market

The basic signification of adverse selection is that the market's collocating function will be inefficient because of the behavior of the traders when the information is asymmetric. Under the condition of information asymmetry, the adverse selection behavior on the securities market results in underinvestment or overinvestment, which both decrease the market's efficiency. The major idea of this paper is to advance feasible policies to deal with the adverse selection behavior on China's securities market. This paper includes introduction and three chapters, the introduction introduces the researching background, significance and methods of this paper, the main contents of the three chapters are described as followings:Chapter one is the review of the adverse selection theories. This chapter summarizes the achievements of the researches on adverse selection. Theoretically, we can deal with the adverse selection by signal transferring and information discriminating, which provide the theoretical basis for us to advance methods to deal with the adverse selection behavior on China's securities market.Chapter two analyses the phenomena, results and reasons of the adverse selection behavior on China's securities market. The adverse selection is represented by the decrease of quality of the new listed companies and the weak correlation between the price and performance of the listed companies. We analyze how the adverse selection behavior results in underinvestment or overinvestment by game theory, and the reasons for the information asymmetry which leads to adverse selection directly from the following factors: information source, information channel and information sink.Chapter three advances the methods and puts forward policies to deal with the adverse selection behavior on China's securities market. The first method is to perfect information disclosure system, the second method is to intensify signal show. We need to perfect the securities market bodies including the listed companies, agencies and the investors and ameliorate the information disclosure system. We need to encourage the listed companies to form steady dividend policy so as to use the dividend signal, and change the management-mechanism of the commercial banks and found the credit standing system for the listed companies so as to use the commercial banks loans signal.