Regulatory changes and market liquidity in Chinese stock markets.doc

Regulatory changes and market liquidity in Chinese stock markets
PAGE
PAGE 1
研究领域:金融学
Regulatory changes and market liquidity in Chinese stock markets
Lei Gao
Assistant Professor of Finance, Business School of Shantou University1>.
Daxue Road 243, Shantou, Guandong, . China 515063.
E-mail: ******@1263>, Phone: 00867542903389, Fax: 008675429039>442
Gerhard Kling
Assistant Professor of Finance, Utrecht School of Economics.
Vredenburg 138, 3511 BG Utrecht, herlands.
E-mail: g.******@, Phone: 003130-253-9682, Fax: 003130-253-7373
Abstract Our study measures the impact of institutional reforms in China on market liquidity. Using monthly data on turnover ratios, turnover-volatility ratios and stock returns for the Shanghai and Shenzhen Stock Exchange and applying an intervention model, we detect a considerable impact of regulatory changes on liquidity. Our empirical model also accounts for the disposition effect and macroeconomic shocks. The ban of futures trading reduced market liquidity; however, missions enhanced trading. Market reforms were favourable for the development of the Chinese stock exchanges – but these effects were not long lasting.
Key words: Shanghai Stock Exchange, Shenzhen Stock Exchange, disposition effect, liquidity, regulation


1. Introduction
Our paper aims to investigate the impact of regulatory changes on market liquidity in Chinese stock markets. Chinese stock markets are unique among dozens of their peers in the world. As China was and to some extent still is a centrally planned economy, the overdue government control is the most conspicuous peculiarity. Since their reopening in the early 1990s, Chinese stock markets were interposed by munist government. Instead of the market rule, government policy plays a dominant role. In China, the phrase “you can not beat the market” es “you can not beat the government,” which clearly demonstrates investors’ cynic mentality. Accordingly, one obtains the impression th