China's Stock Market Trading Mechanism And The Price Behavior Of Empirical Research

As the development of the market microstructure theory, people have found the importance of the trading mechanism during the process of market price formation, so as to cause the research on trading mechanism a front financial field. And it is the main function of the trading mechanism that it can transfer the potential demand of the traders into actual trade, and during the transferring process, the key is the price discovery process. How to evaluate a mechanism lies on how to measure the price discovery efficiency of the mechanism, which measures the power of the market on reflecting the new information quickly and completely. So the empirical research on price discovery efficiency can also benefit for understanding the efficiency of some specific trading mechanism. This paper makes some empirical research on the trading mechanisms of Chinese stock market by using the CSMAR database. I find significant difference between the influences of different trading mechanisms on the stock price behavior. Also I reach the conclusion that the price discovery efficiency of the trading mechanism on Chinese stock is lower than some mature international stock market. Firstly, this paper briefly mentions the price formation theory and trading mechanism, and how the trading mechanism can affect the price behavior, then introduces some basic trading mechanism of Chinese stock market. Secondly, This paper makes an empirical analysis over the stock price behavior of two different trading mechanism, I find opening returns are found to exhibit greater deviation from the normal distribution, greater dispersion and a more negative and significant autocorrelation pattern than closing returns. And I also make an observation that the greater dispersion of opening returns is induced by both the overnight trading halt before open and the periodic call mechanism. I conclude that different trading mechanisms have significant effect on stock price behavior. The third, I use a better estimator of price adjustment coefficients to make an empirical research on the price discovery efficiency of Chinese stock market. I find it is a process of vibration for prices adjusting to information and 12 days are needed for full adjustment, which is a lower efficiency than some mature stock market such as USA and Hong Kong.