Comparative Research On Market Quality Of China’s Main Board And Growth Enterprises Market Board

Stock market is an important part of security markets. It involves huge cashflows, various industries and numerous investors, and all these have made it a decisiveposition. Since the Shanghai and Shenzhen Stock Exchange were established in1990,the Main Board has gone through more than20years. Its rapid development haspromoted the steady growth and reform of Chinese economy. After more than tenyears of hard preparation, China’s Growth Enterprises Market Board （GEM Board）opened on October30,2009, it adapts to the inherent requirements of China’sresponse to the international financial crisis and domestic economy development, andit is in favor of changing the way of economy development and nurturing theemerging strategic industries.Market quality is an important symbol of market efficiency and maturity. Themarket quality in stock transaction process has become increasingly important in theglobal competitive environment. So improving the market quality is the basic premisefor participating global competition. In the sense of the overall development trendChina’s stock market is entering a stage of the innovation and development which isfocus on enhancing market quality. The Main Board and GEM Board are different intrading rules, investor characteristics and listed companies, but the two markets are inaccordance with China’s national conditions, so they are comparable and can learnfrom each other. Therefore, to enhance market quality of China’s stock market as awhole, we should find out the differences of market quality between the Main Boardand GEM Board, analyze the reasons for the gap, and propose suggestions for the twomarket to learn from each other.Financial market microstructure theory suggests that stock market qualityinvolves in many fields, such as the market’s liquidity, volatility, transparency,effectiveness and transaction costs. Therefore, this thesis establishes a relativelycomplete evaluation system, including liquidity, volatility and effectiveness etc. whichare representative and quantifiable, for an empirical comparison of market quality ofChina’s Main Board and GEM Board. Hoping that we can find the difference ofmarket quality between the two markets, and make suggestions about promoting thestock market to keep moving toward higher liquidity, faster speed of trade execution and lower transaction costs. This thesis mainly includes the following sections:(1) We propose the topics of the study and the significance of the research in thefirst place, and then review the domestic and foreign literatures. We find that the studyof financial market microstructure theory started late in China, the evaluation of themarket quality mainly focuses on the analysis of the single indicator or two indicators,cause it lack of systematic measure. Meanwhile, GEM Board’s opening time islimited, most of the existing studies are normative analysis, which focused on thecomparison of Chinese and foreign GEM Board and GEM Board’s system buildingrecommendations, few researchers do comparative analysis of the two markets. Sothis thesis researches from this perspective.(2) We set out basic theory of the thesis. Based on clearing the meaning ofmarket quality and the importance for stock market development, we discussed themeasure indexes of stock market liquidity, volatility, effectiveness and transparency interms of concepts, models, etc., Finally, seven market quality influencing factors arelisted.(3) We make empirical research on China Main Board and GEM Board marketquality comparative analysis from liquidity, volatility, effectiveness aspects In thecomparison of liquidity, CSI300Index represents China’s Main Board; GEM Boardindex represents GEM Board. By calculating and comprising Amihud liquidity ratioand Martin liquidity ratio of them, the results show that the liquidity of the MainBoard is better than the GEM Board. The reason is that the GEM Board serves forpromoting the development of independent innovation enterprises and other growingentrepreneurial companies; it is different from the Main Board in volatility of theincome, market size, and listed companies quality and so on. The GEM Board shouldpay special attention to liquidity risk.In order to make comparison of volatility difference, we select the CSI300Indexand the GEM index logarithmic return series for the study sample. Based on Mann-Whitney U test and Wilcoxon rank sum test.we conclude that the volatility of GEMBoard is higher than the Main Board. The reason is that people often focus oncompany’s high-growth and high profitability, and ignore the operational risks andunstable performance.By employing the Event Study method we investigate the semi-strong formefficiency of the Main Board and GEM Board. The empirical results show that, afterthe announcement of raising interest rates, the market still keep on absorbing the information, and the excess returns persist for a period of time, so the Main Board andGEM Board did not reach semi-strong form efficiency. However compared with theGEM Board index, the information efficiency of the Main board is better. Disclosureof listed companies, non-rational personal investment and inadequate legal system arethe reasons for this phenomenon.(4) In order to resolve the liquidity risk of the GEM Board, maintain stablemarket operation and improve the informativeness of stock market price, based on theempirical findings, the thesis proposes the following suggestions: First, we mustfurther improve the GEM Board’s operating mechanism， including the IPOmechanisms, regulatory mechanisms, trading mechanism and delisting mechanism.Second，we should pay much attention to investor relationship management. Third,we must strengthen the GEM Board’s management of Investors. Fourth, we mustincrease supervision, raise the level of information disclosure.