The Study Of The Relationship Between The Financial Regulatory Policy And Stock Market Volatility

The mature stock markets in the developed countries of the world are regarded as the barometer of their national macro economies.However,the effectiveness and the barometer function reflecting the national economy of China's stock market have been widely questioned by domestic scholars.There are internal and external reasons,the internal reasons mainly include the institutional weaknesses in China's stock market,the overall small size of the stock market and the deviation of market positioning,the external reasons mainly are policy factors.Throughout the development history of China's stock market in the past 30 years,it is quite common for government regulators to frequently intervene in the stock market.The stock market has been inextricably linked by different policy factors.Therefore,China's stock market is always known as the policy market.Frequent and inappropriate financial regulatory policy interventions will greatly hinder the formation of the internal stability mechanism of China's stock market,causing distortions in the market mechanism,also the interventions will weaken the effectiveness of the stock market,making it difficult to works as a barometer.Therefore,in-depth study of the relationship between financial regulatory policies and China's stock market volatility has important theoretical and practical significance for ensuring the healthy and sustainable development of China's stock market.Firstly,this paper reviews and sorts out the literature on stock market volatility,the impact of policy events on stock market volatility,and the relationship between financial regulatory policies and stock market volatility.A large number of domestic and foreign empirical studies shows that policy events(especially financial regulatory policies)have an important impact on stock market volatility.Secondly,this paper analyzes the volatility characteristics of China's Shanghai and Shenzhen stock markets and finds that the volatility characteristics of the two markets are highly similar.Based on this,this paper selects a more representative market,Shanghai stock market,as the research object,and uses the modified ICSS algorithm to detect the variance structural change point of the Shanghai Composite Index's yield series.Then we determine the corresponding financial supervision policy and other three types of major policy events,including economic policies,international events and market information.Among them,financial regulatory policies accounted for the highest proportion(up to 52.38%),showing that financial regulatory policies are the main reasons for the structural changes in Shanghai Composite Index's yield fluctuations.Thirdly,in order to further explore the impact of financial regulatory policies on stock market volatility,this paper constructs GARCH models and ARMA-GARCH models to fit the logarithmic yield series of Shanghai Composite Index.By comparing the fitting effects of each model,we select the ARMA(3,3)-EGARCH(1,1)model.Then,we introduce the virtual variables of the financial regulatory policy and the other three types of policy events into the original model,and find that the financial regulatory policy shock is the main cause of stock market volatility.we select the ARMA(3,3)-EGARCH(1,1)model.Fourthly,this paper establishes the GARCH(1,1)model one by one for the financial supervision policy and the other three types of policy events,and corrects the prediction results.Then,the predicted volatility and the historical volatility are used to calculate the dispersion to measure the extent of the impact of policy events on stock market volatility.We find that financial regulatory policies have the greatest impact on Shanghai stock market volatility.Furthermore,the specific financial regulatory policies are divided into favorable policies and bad policies.We use the event research method to conduct an empirical study on the impact of specific financial regulatory policies on the volatility of the Shanghai Composite Index.It is found that,in general,the Shanghai stock market does not have the efficiency of financial regulatory policies and is not a semi-strong effective market.Finally,based on the research results,we propose relevant suggestions from the perspectives of investors and regulatory authorities,and propose follow-up research prospects based on the shortcomings of this paper.