The Research On China’s Stock Market Early Warning Mechanism

In the process of rapid development, there are still many inadequacies of China’sstock market, and compared with mature markets, the volatility of the stock market inChina is relatively large. By identifying the fluctuations of the stock market, andweakening the adverse impact of the volatility, it’s very necessary to design a set ofwarning mechanism which adapt to China’s security market to monitor the stockmarket running.Scholars in&abroad have made a lot of research about warning mechanism ofthe stock market; the early warning mechanism designed by this paper using the"signal" model, which adapt to China’s security market, divided the early warningindicators into three categories, including long-term, medium-term and short-term,while using statistical "3σ" principle to identify indicators threshold. In this paper,normal security value range of indicators is defined as[X-2σ， X+2σ], when morethan a certain number of indicators of each type of index system exceeds the thresholdvalue, then it’s seen as sending early warning signal. When the long-term earlywarning indicators send signals, the warning mechanism can improve the frequencyof monitoring the stock market to the medium-term, while mid-term warning signals,the monitoring frequency was adjusted to daily monitoring.In order to test the reliability of the early warning mechanism in the stock market,the author developed a software called the "Monetary Crisis" and take the pastperformance of China’s stock market as a simulation environment, the simulationresults found that, the “Monetary Crisis” can better reflect the crisis degree of stockmarket, which indicate that this software can monitoring the operation of the stockmarket in China effectively from the long-term、medium-term and short-term.On the basis of the above study, finally, this article put forward recommendationsfrom the investment and regulatory aspect to response to the stock market crisis.