Financial Stabilized Or "Crash Boost"?

In recent years,the reform of Chinese capital market has entered into a crucial stage,with the emergence of increasingly relaxed industry access conditions,continuous innovation of financial products and nearly perfect connectivity mechanism.The achievement of Chinese capital market reform has been well recognized by the international market with the launch of a series of reform measures.However,as a double-edged sword,the opening of capital market does promote the stability of Chinese stock market and prosperity of the capital market,but it also has brought a series of risks and challenges to China.Given to the particularity of Chinese capital market,the opening of the market could increase the volatility of the stock market and reduce the efficiency of market pricing and resource allocation.Among them,the frequent "skyrocketing and plunging" phenomenon in the stock market has attracted the attention of numerous scholars.In May 2018,MSCI officially included A-shares into the MSCI indexes,which was a milestone in the internationalization process of Chinese stock market,after the establishment of Shanghai-Hong Kong Stock Connect and the Hong Kong Stock Connect.In order to ensure that its indexes can accurately reflect the dynamics of capital markets,MSCI regularly adjusts the index components,which could not only trigger the index effect,but influence subject companies,analysts’ forecasts,and institutional investor behavior.At present,the academic analysis of the impact of capital market opening on the stock price crash is mostly based on the ShanghaiHong Kong Stock Connect.Nevertheless,associated issues have less been discussed from the micro-perspective of the inclusion of A-shares into MSCI indexes.Given to the above questions,in this thesis,we intend to take the event of the inclusion of A-shares into MSCI as a quasi-natural experiment,base on which,we build a theoretical analysis framework of the inclusion of A-shares into MSCI index and the risk of stock price collapse by combining stock index component adjustment hypothesis,efficient market hypothesis and information asymmetry hypothesis et al.Specifically,we take the domestic A-share listed companies in Shanghai and Shenzhen from 2012 to 2021 as the research sample,and use the difference-indifferences model to evaluate the impact of the inclusion of A-share into MSCI index in 2018 on the risks of stock price crash of subject companies.The empirical results of the thesis mainly reveal that: the inclusion of A-shares into MSCI indexes significantly intensifies the collapse risk of the stock price of subject companies,especially those with small market value and low profitability.Furthermore,from the perspective of analysts’ forecast deviation and irrational behaviors of foreign investors,we investigate the mechanism of how the inclusion of A shares into MSCI indexes exacerbates the risk of stock price crash.In our opinion,the increase of the optimistic bias of analysts distorts the external information environment of subject companies,which leads to the bubble of stock price and thus intensifies the risk of stock price crash.Moreover,the irrational "herd behavior" of foreign investors also boosts the crash risk.In addition,based on conclusions of the thesis,we put forward some suggestions on strengthening the supervision of analysts’ practice,improving the disclosure of corporate information,and promoting the stepwise opening of Chinese capital market.