The Comparison Of Price Formation Mechanism Between Mainland And Hongkong Stock Market

On November 17, 2014, Shanghai-Hong Kong Stock Connect program opened, it marked that China capital market reform took concrete steps forward. At the same time, Shenzhen-Hong Kong Stock Connect program has been in intensive preparing. China stock market trades with Hong Kong stock market more frequently. We can also see that there is a huge difference in the price formation mechanism of stock market. It brings much challenge to build a common market..China stock market has great market volatility and the price of small cap stocks is overestimated. On the other hand, speculative atmosphere prevailed and resource allocation efficiency is low. The basic reason is that Chinese stock market price formation mechanism has defects.Compared with the mainland market, the Hong Kong stock market is more mature and professional. Price formation mechanism is more efficient and market-oriented. The whole price is more reasonable. By comparing the two market’s price formation mechanism, we can conclude that the mainland stock price formation mechanism is inefficient. So constantly developing and improving the mainland stock market price formation mechanism are very necessary. We need to make the mainland stock market valuations return to rationality and provide security for Shanghai-Hong Kong Stock Connect program and Shenzhen-Hong Kong Stock Connect program.To explore the price formation mechanism’s differences we need more preparation. Firstly compared the stock markets’ price level with the market mechanism because that price level strongly reflects the efficiency of price formation mechanism and market mechanism is the guarantee of the efficient operation of price formation mechanism. Secondly compared price formation mechanism between the two markets from two aspects of supply and demand mechanism and transaction mechanism.And analyze the influence factors of supply and demand mechanism, its transmission mechanism, the influence factors of transaction mechanism and explore the transmission mechanism from three aspects of macro, micro and market. Last but not the least, analyze the huge price difference between growth enterprise markets by empirical analysis and residual income model to evaluate value, Hong Kong gem share’s price is closer to its intrinsic value.Based on the above, put forward the following conclusions in this paper: First, the stock market price formation mechanism between the two markets is very similar and market valuation level is approaching. Second, the mainland stock market price formation mechanism is low marketed and government intervention is serious. Third, speculative atmosphere is popular in the mainland stock market and market lacks value investment idea. Fourth, the mainland stock market is not enough mature, the relevant laws and regulations is imperfect and supporting measures needs to be optimized. According to the above conclusions, the author puts forward some Suggestions: setting up registration system, optimizing the mainland stock market investors and setting up correct investment concept in terms of perfecting the mechanism of supply and demand. In the aspect of improve the transaction mechanism, allowing securities companies to participate in bidding, gradually achieving T+0 trading patterns, canceling the limit of price changing, marketed securities margin trading and establishing strict, multilevel system of information disclosure.