Research Of Market Volatility Impact In GEM China With Price Limits Policy

Volatility is inherent characteristics of the financial and securities market.From Macro Point Of View, excessive volatility in the market will increase the risk of the entire financial system, and it also will make distortion of stock price signals which considered as index of resource allocation.From micro point of view, if excessive volatility occurred in the stock market, it will bring the investing public (mostly risk averse) greater uncertainty, and even more it will make them lose confidence in the long term. So, how to stabilize the market is always the supervision focus of Governments and regulatory agencies.China's Growth Enterprise Market officially listed in October 30,2009,it takes a 10% price limits policy, the purpose of price limits policy establishment is to restrict the prices of the corresponding financial products, to reduce the volatility of stock price, finally, to reduce market risk, and to stabilize the market. The original intention of policy makers is good, but frankly the effectiveness of policies needs to be judged through research and practice. For now, the academic view of this policy is different, favorers point out that price limits policy stabilizes the stock market until the over-speculation occurred, and also reduces Volatility, and thus the policy is conducive to the healthy development of financial and securities market.Opponents point out that only in the continuous trading information can be widely spread, thus the price limits policy does not reduce information asymmetry. But instead it makes the stock price changes which cannot fully reflect the underlying economic factors. Furthermore it increases investor's uncertainty and stock price's volatility.Theoretical and empirical analysis methods are combined in this paper, Firstly to describe the concept, origin and the existing theoretical results of the price limits policy. Then to adopt 3 indicators in many statistical indicators after referencing to the existing literature:Delay of Price Discovery Hypothesis, Volatility Spillover Hypothesis and Trading Interference Hypothesis. The empirical analysis reaches the following conclusions.Firstly, the empirical results of Volatility Spillover Effect show that the 10% price limits policy in China's Growth Enterprise Market does not make significant effect on suppression of excessive volatility of the stock market, even more it makes negative effect. Secondly, after testing Delay of Price Discovery effect, it shows that, the limits policy does not make effect on suppression of investor's excessive reaction, but hinders the price close to the equilibrium price. Thirdly, from the empirical results of Trading Interference Effect, it can be checked out, the 10% price limits policy in China's Growth Enterprise Market makes bad influence on the liquidity of stock trading and the stock's normal tradingTherefore, the above conclusion that,10% price limits policy in China's Growth Enterprise Market did not achieve the target for the policy designer. It could not effectively reduce the market volatility, instead, to some extent reduced the efficiency of markets. For this situation, we suggest the following measures be taken.From the technical side, first, creating a reliable, comprehensive coverage of the stock market risk detection system.Pre-detecting, preventing and punishing securities criminal acts will increase investors'confidence and sense of belonging on the market. And it will maintain the effectiveness, stability and fairness of Growth Enterprise Market.Second; the composite index can be used as intermediate target under the monitoring of Stock Exchange. So the effectiveness and stability that reflect the target market will increase. In addition, a strong support data system which including members'information, companies'information, shareholders'information, transactions details, transaction data etc...will be built on. So that all investors and the public can search the information and superviseFrom the policy side, first, the securities trading system need to be further improved and operation of the market need to be stabled. According to specifications and maturity of the market, gradual relaxation of price limits will let the Market mechanism to decide on share price range. Second, the price stability system based on the dynamic reference price can be taken; this method will help to enhance the continuity of the transaction and price discovery efficiencyEnhance the continuity of the transaction, is conducive to price discovery efficiency. In addition, the information disclosure system of stock market needs to be improved continually, thereby to increase market transparency On the one hand, the intensity of all information's disclosure and regulatory should be strengthened. Periodic disclosure of information should be shortened. Information lag situation should be improved. Information asymmetry should be reduced.On the other hand, the operability of relevant laws and regulations should be strengthened. Market transparency should be increased. Supervision and punishment should be strengthened. And all of these methods are to protect the interests of investors.