How Does The Chinese Government’s Buffer Fund Influence The Volatility Of The Stock Market

The stock market crash is not a stranger in Chinese stock market and since the establishment of the security market in China,the boom-collapsed market crash has been witnessed for like 10 times.The massive stock-market turbulence in 2015 was also in a boom-collapsed way,but was more serious.Because of the liquidity exhaustion thousands of shares limited down during that period of time which is still daunting now.With this situation,to restore investors’confidence Chinese government intervened the market with trillions of dollars which was injected liquidity into the market and halted further market collapse.This kind of government intervention is not the fist time in international stock market.Hong Kong,Taiwan,Japan and South Korea have all adopt a similar policy like china and the results are also various.However in China the capital scale is beyond trillion,accounts for over 3%of the entire stock market value,this strength is the first time in the international securities market.And in the domestic stock market the participation extent of the national capital is far more than QFII and RQFII(QFII’s approved accumulative total investment quota in May 2017 is $927.24 and RQFII’s is 543.104 billion RMB).And also because of the special traits the influence of the buffer fund at message level has enlarged it’s effect of the share holding information especially when the market lack of information transparency.It is this new "investor" that has a profound impact on Chinese stock market.Therefore this paper will make use of the existing data to discuss the impacts of the buffer fund from the whole and part of the stock market.The whole research framework of this paper is divided into six parts:The first part is the introduction.This part of the paper mainly describes the background,significance,research framework,research methods and innovations.The second part is the literature review.This part mainly focus on the government interventions in the economic markets,the relation between the buffer fund and the stability of the stock market and the different impacts of various institutional investors along with the author ’s review.The third part is the theoretical analysis and research hypothesis.This part firstly defines main conceptions of this essay and three related theories in order to analysis the efforts of government.Then it puts forward several relevant assumptions both on the whole and part dimension of the stock market.The fourth part is the empirical model and results on the macro influence of government buffer fund.This part firstly elaborates the standard of model selection and the sources of relevant data.Secondly it describes the empirical analysis through descriptive,correlation and regression test to verify the associated assumptions of this paper.The fifth part is the empirical model and results on the micro influence of government buffer fund.This part firstly elaborates the standard of model selection and the sources of relevant data.Secondly it describes the empirical analysis through descriptive,correlation and regression test to verify the associated assumptions of this paper.The sixth part is the conclusion of this paper and related suggestions.Through the analysis of empirical test results,draw the conclusion of this paper.And according to relevant policy recommendations and summarize the shortcoming of the research at end of the paper.On the macro level,this essay uses daily yield of Shanghai Composite Index during 2014-2016 as data sample and ARMA(1,1)-GARCH(1,1)model based on its features.The empirical results indicate that Shanghai Composite Index did not show significantly changed volatility after the intervention of the government buffer fund.On the micro level,this essay uses national capital holdings in 2015-2016 as data sample.The empirical results show that:(1)the buffer funds holding stocks in the manufacturing industry significantly aggravate volatility of individual stocks;(2)due to the particularity of the financial industry,the buffer funds holding stocks in this sector stabilize the volatility of individual stocks;(3)the greater the buffer fund holdings,the more significant effect on individual stocks volatility.The innovation and main contribution of this paper include in the following points:firstly,the operation of Chinese stock market with the participation of government fund is a brand new experience and even in the international financial markets.At present,the investigation of the influence of the government’s buffer fund on the financial market is focus on qualitative research and lack of empirical research.The empirical results of this article can enrich existing research;secondly as for the possible endogenous problem of the government fund’s investment behaviors this paper introduces GMM model in the robustness test to eliminate this problem in some degree;thirdly,the author has collected the proportion and market capitalization of the national team by hand,which has enriched the relevant research data.