| After 20 years of development in China's stock market, the number such as the number of listed companies and stock market capitalization and investor accounts, as well as, the quality issues such as resource allocation in national economy and establishment of related systems, have made great achievements. It becomes more and more prominent in national economic development. However, we must also see that the China's stock market is volatile very much and it is often up and down rapidly. This excessive volatility is harmful to the financial system and the national economy. How to effectively reduce excessive volatility of stock market and improve government intervention to promote the development of the stock market and play a role in national economy, which is an art, is a worthy of theoretical and practical issues.The excessive volatility in China's stock market is analyzed as following:Firstly, EGARCH model is used to describe the volatility equation of stock market. Secondly, the residual-based variance-increase method and the prediction based on volatility equations to determine the excessive volatility point method are used to select the excessive volatility points. Finally, the steps are used in typical market in the world to find out excessive volatility points in the stock market in other countries. The conclusion is that China's stock market has the characteristics of excessive volatility by comparing the proportion of excessive volatility points to the total sample in all countries. Therefore, the next step is to focus on the stability mechanism of the stock market.One of the stable mechanisms of stock market is price limits system. Two ways are used to test whether price limits stabilize the stock market. The first hypothesis is cool effect, that is, price limits can provide a cooling-off period for investors to gain more information and re-evaluate the market price and thus avoid overreactions.If cooling-off hypothesis is supported, price limits can reduce volatility of stock market. The Second hypothesis is magnet effect, that is, price limits may increase the price volatility and the probability of achieve the limits ultimate when prices are approaching the limits. The study concluded that China's stock market does not support the cooling-off hypothesis and support the magnet effect, and the magnet effect is enhanced with the reduction of share capital.The second stabilization mechanism of stock market is securities transactions taxes. In order to examine whether securities transactions taxes increase or decrease the volatility of the stock market, the article investigates firstly whether volatility of the stock market is the same before and after the stamp duty announced by F-test, then, by using GARCH-ARMA model, whether the securities transactions taxes can regulation the stock market as an important tool to control the operational of the stock market is studied. The study concluded that the securities transactions taxes has an impact on stock market volatility in short-term, and there is no impact on stock market in long term. Securities transactions taxes can not be used to adjust the stock market to bull or bear.The other stability mechanisms of the stock market include the stock market stabilization fund and securities investment funds and stock index futures, which have some impact on stability of the stock market.After analyzing the stability mechanism of the stock market, the article finally put forward the macro and micro policy recommendations to reduce excessive volatility in China's stock market. Macro-policy mainly includes monetary and fiscal policies, which affect the operations of listed companies mainly by influencing macro-economy and thus stabilize the stock market. The micro-mechanism has a direct effect on the stock market, which includes much aspect such as adjusting the number of shares supply and demand and regulating securities transactions taxes and price limits and establishing stabilization fund and credit transactions.
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