The Application Of Financial Econometrics In The Calculation Of Securities Civil Compensation

As an emerging market, securities fraud cases of China’s stock market are not uncommon. From the "deep wilderness" case in1992,to the famous "red case","Guangxia" case,"Dongfang Electrinics "case,"LanTian" case and so on in2000. Securities fraud cases have been plagued investors and also jurists and economists. However,China didn’t establish a civil compensation system for security fraud until the famous economist professor Wu Jinglian called for "China’s stock market can’t be black" on CCTV in October2000, and a large number of economists and jurists endorsed. In other words, the investors’loss can’t be compensated by the court after the China’s securities market was established10years.The red case happened in1998is the earliest securities fraud civil compensation case. At that time, there is no clear civil compensation system for reference. Therefore, when discussing the case, jurists and economists have expressed a number of difficulties and embarrassment. The uncertainty of stock price fluctuation and not familiar with the intrinsic value of the stock is a common feeling of the vast majority of judges and lawyers. Until the Supreme People’s Court issued on the notice and the regulations on February1,2003, China established a civil compensation system for securities fraud after the birth of13years.The introduction of the regulations is a significant step forward in China’s securities civil compensation system. However, in the view of financial economics, it’s difficult to obtain the support of the theory of financial economics because of the serious theoretical deficiencies, specifically, the causal relationship between the false statements and investor losses, the scope of compensation to the damage, the calculation of the amount of damages. Because of the defects, the restraining effect of securities market is greatly reduced. In recent yesrs, securities fraud cases are still emerging. For example,"Hanxiao" steel case in2007,in2011just happened "green earth event." Seeing that, learn from a more comprehensive securities civil compensation experience of the developed countries. For example, SEC applied the financial econometric models to securities fraud, and the most widely used method is the event study methodology.This paper introduces the event study in foreign securities civil compensation, that is, from a quantitative point of view to determine the causal relationship between events and volatility, as well as how to calculate the amount of compensation. Learn from their experiences and lessons, we attempted to apply the method in China’s securities civil compensation cases, to provide a method for fraud cases in China.The full paper is divided into five parts. The first part of the preface describes the purpose, and significance of the study, the research methods used in the paper, and relates literature. The second part addresses the current compensation rules in China and its shortcomings. The third part introduces the securities civil compensation calculation about the distribution market and the trading market in the USA and comments in the rule of1995damages limit. The fourth part focuses on the event study method which is widely used in the securities civil cases in the USA. The last part is the empirical part of this paper, applies the event study method to the fraud case "red case".The pursuit of innovation in this paper is:First, according to the theory of net loss, we use the event study method to remove the impact on stock prices of factors which are nothing to do with the event. Second, using the hypothesis test to determine a causal relationship and also ensuring the reliability of the results through parametric test and nonparametric test. Third-the empirical analysis. We apply the event study method to the fraud case "red case"The inadequacies in this paper are:First, the empirical analysis only in respect of fraud case and not involves insider trading and market manipulation cases. Second, although the event study method has its advantage in theory, the result of empirical calculation is difficult to examine the degree of accuracy. Third, as some literature relates to abroad, some statements in translation are not accurate.