Qfii System Research Of The Impact Of China's Stock Market Volatility

China introduced the QFII system (Qualified Foreign Institutional Investors) as an open capital transitional institutional arrangements in2003. As of2011, the QFII system practiced for eight years, during which there have been four major policy adjustments. And the research object of this paper is to find out the influence of every policy adjustment on Chinese stock market.This paper uses GARCH model and event analysis to make the empirical research on the four events for the gradual opening of the QFII system in the past eight years. Among them, four events are:the first time in July2003, the QFII system was introduced; the second in July2005, the total amount of QFII was enhanced from＄4billion up to＄10billion; the third time in2007December9, further expansion of the total amount of QFII to30billion U.S. dollars; Fourth October10,2009, the amount of investment of a single QFII institutions by＄800million upwards to＄1billion. Meanwhile, in the empirical analysis, the trading volume is introduced as a control variable to measure the marginal effects of other institutional and retail investors trading on the stock index return volatility under the QFII system.Through a combination of short-term and long-term empirical analysis, we concluded that, the gradual implementation of the QFII system, without considering the interference of the financial crisis, constantly enhance its positive influence on the Chinese stock market, and its binding effect on the stock market’s volatility is gradually becoming apparent. The QFII policy, which expands the proportion of QFII in Chinese stock market, led to the growth of Chinese domestic institutional investors, also bring the Chinese investor the investment philosophy, such as investing in blue chip stocks, emphasis on the dividends of listed companies, the enterprise’s profitability and long-term development. On this basis, This paper put forward a four-point policy proposals to make our capital markets truly become the platform for the real economy’s asset pricing and financing, and for individuals and institutional investors to share the fruits of economic growth of China.