تغییرات قانونی و نقدینگی بازار در بازار بورس چینی

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. Motivated by the inventory paradigm and the disposition effect, our empirical model accounts for market returns and macroeconomic shocks. The ban of futures trading reduced market liquidity; however, lower commissions enhanced trading. Market reforms were favorable for the development of financial markets—but these effects were not long lasting.

As China was and to some extent still is a centrally planned economy, the excessive government control is the most conspicuous peculiarity. Yet, since 1990, many regulatory changes have occurred that improved the legal framework and reduced barriers to trade. For instance the stamp tax, which buyer and seller have to pay for every transaction, was reduced several times. Diminishing transaction costs should have stimulated trading. State interventions like the prohibition of ‘illegal’ futures trading, however, could have outweighed other improvements. The overall impact of these regulatory changes is unclear and requires clarification to stimulate further beneficial economic reforms. The purpose of our study is twofold: first, our paper tries to reveal the impact of policy changes on market liquidity on the Shanghai (SSE) and Shenzhen (SZSE) stock exchanges from December 1990 to December 2002; second, we develop an analytical framework for analyzing the influence of regulatory changes on market liquidity. Our model allows anticipation of events, controls for unexpected macroeconomic shocks, accounts for contemporaneous market conditions and models the dynamic response of liquidity. Based on our empirical findings, we formulate policy recommendations to enhance market development not only in China—but also in other emerging markets. Former research on the interrelation between market reforms and the development of Chinese financial markets concentrated mainly on responses of stock returns triggered by political events. Jin and Tang (2001) claimed that policy factors are the primary reason for market movements in the period from 1992 to 2000 in which 16 huge market fluctuations, whose amplitudes exceeded 20%, occurred. They stressed that 46% of all market fluctuations were due to regulatory changes. Shi (2001) demonstrated that policy changes were responsible for 30 out of 52 abnormal fluctuations during the period from 1992 to 2000. Kim and Singal (2000) showed for several emerging markets that abnormal returns on stock markets could be observed about 8 months prior to market liberalizations. These studies underlined the predominant role of policy changes for share price movements—but they have not discussed whether market reforms have long run effects on market development. An exception is Firth et al.'s (1998) analysis of the suspension of the Chinese Treasury Bond futures market because they estimated the impact of this specific regulatory change on liquidity and not only on stock returns—but their study was focused on this single event. A central aspect of market development is reaching a high level of market liquidity, which is a prerequisite for efficient markets, as transactions convey private information and increase the information content of share prices.2 Several papers emphasized that well-operating financial markets are a catalyst for economic development (see Levine and Zervos, 1998). In particular, higher market liquidity is positively related to economic growth, progress in productivity, and expansion of capital accumulation. Hence, market reforms should enhance market liquidity to facilitate investment and guarantee long run economic growth. Our paper is organized as follows. The literature review highlights the role of the state in Chinese stock markets and theoretical considerations concerning the relation between returns and liquidity. Part three describes the dataset and discusses different measures of market liquidity. Section 4 derives the empirical model followed by our findings. Finally, the conclusion tries to identify policy recommendations based on our empirical results and provides advice for practitioners, who could benefit from higher liquidity.

Bekaert et al. (2002) found that financial markets tend to be more liquid after regulatory changes that enhance market integration. Our results suggest that reforms can increase liquidity — but we cannot find a steady improvement of market liquidity over time. Policy changes announced in the daily newspaper trigger pronounced reactions in market liquidity regardless whether turnover or turnover – volatility ratios measure liquidity. Macroeconomic shocks hardly affect market liquidity. Applying our model to the SEE and SZSE allows detecting differences regarding their ability to tend back to equilibrium after an exogenous regulatory change. 12 Accordingly, we can state that turnover ratios of the SSE reach their former values with higher velocity than turnover ratios of the SZSE. Yet when using turnover – volatility ratios this alleged advantage of the SSE vanishes, as the autoregressive nature is similar on both exchanges. Based on these findings, we can state that the SSE cannot cope better with political events than the SZSE. Which policy recommendations should be drawn based on our empirical findings? The public release of information regarding an imminent regime shift possesses a strong influence on market liquidity. We can state that regulatory changes do not influence market liquidity in the long run. Regulatory changes alone are not a guarantee for higher market liquidity in the long run and hence have to be associated with advanced market integration (see Bekaert et al., 2002 ). Practitioners should be aware of the fact that regulatory changes cause a pronounced increase in liquidity without increasing volatility; hence, trading large quantities becomes easier on the notoriously thin Chinese stock market after announced policy changes. It is noteworthy that we achieved these results after controlling for stock returns, anticipation of regulatory changes, macroeconomic shocks, and the autoregressive nature of turnover and turnover – volatility ratios. Our methodology could be also applied to other financial markets and might stimulate additional research on the interrelation between legal frameworks and financial markets