Magnetic Effect Of The Circuit Breaker Mechanism In China's Stock Market

With China's economic development entering a new normal,the relevant development data has long been hovering near the line of glory,and the uncertainty has increased.At the same time,after the "8.11"exchange rate reform in the foreign exchange market,influenced by the expected increase of the Fed's interest rate,the international capital outflowed obviously,and the yuan showed a depreciation trend.Affected by the 2015 stock market crash,the stock market continued to be sluggish,and the CSRC's regulations on the major shareholders and senior executives of listed companies not to reduce their shareholdings will expire on January 8,2016.Under this background,in order to prevent the stock price from falling shaply in a short period and promote the stable and sound development of the stock market,China introduced a circuit breaker mechanism on January 4,2016.The purpose of this mechanism is to curb the price fluctuations in the stock trading process.However,the practice in the Chinese stock market runs counter to the original intention of the institutional arrangement.In the mature capital markets such as European stock market and American stock market,the circuit breaker mechanism does help maintain a stable market.In China,the circuit breaker mechanism is a failure and the mechanism has lasted for only 4 days.China's stock market is an emerging market,and the system has a long way to go.In this process,it is urgent to collect a reasonable evaluation and reflection on the circuit breaker mechanism,so as to understand the behavior characteristics of investors in China's stock market,draw lessons from this and promote the further development of stock market.Under this background,it is of great theoretical and practical significance to study the circuit breaker mechanism of China's stock market and its magnetic effect,as well as provide empirical evidence for promoting the healthy development of China's stock market,thereby improving the efficiency of resource allocation in the capital market.Based on the analysis of the characteristics of the circuit breaker mechanism,the paper studies the characteristics of the magnetic effect of the circuit breaker mechanism in China's stock market by comparing the characteristics of the circuit breaker mechanism of China and other markets,so as to further clarify the magnetic effect of the circuit breaker mechanism in China's stock market.Then the paper explores the formation mechanism and theoretical principle of the magnetic effect.Based on the daily frequency data and intraday high frequency data of the Shanghai and Shenzhen A-share market,this paper using event study and econometric test,from the perspectives of volatility of stock price and the speed of change of stock price and trading volume,studies the magnetic effect of the circuit breaker mechanism in China's stock market.It is found that when the circuit breaker mechanism is about to be implemented,the stock trading price will show downward abnormal fluctuations,and the fluctuation will be intensified during the implementation of the fuse mechanism;the stock price of listed companies of different scales and industries has no significant difference in the reaction to the circuit breaker mechanism.During the implementation of the circuit breaker mechanism,the stock price and trading volume approached the trigger point with a positive acceleration near the trigger price.The institutional shareholding ratio of listed companies in most industries has a significant positive rate for the abnormal yield of the stock price.The behavior of institutional investors in the Chinese stock exchange market has not weakened the magnetic effect of the circuit breaker mechanism.The magnet effect of the circuit breaker mechanism and the magnetic effect of the price limit system overlap to some degree.At last,the countermeasures and suggestions are put forward to promote the healthy development of China's stock market and promote stock market price limit regime,from the aspects of fostering mature investors,strengthening institutional investors' capability of stabilizing markets and arranging prudent system.