Stock Market Predictability Based On Microstructure Theory

Capital market as the core of modern finance, driving China's sustained and rapid economic growth. China's securities market has experienced20years of development, its maturity and effectiveness of the operation related to the efficiency of capital market running, can affect the overall macro-economic development. The traditional Efficient Markets Theory is generally believed that market efficiency is stronger, the worse predictability is, why return is closer to random walk. So predictability can be used as external performance of the effectiveness. At the same time, as dominant market feature, the research related to predictability also become more heated by scholars. At present, China's research on the market predictability is a lack of scientific systematization. Study of China's market predictability can not only focus in market efficiency, but also further excavate its own economic significance.ListenRead phoneticallyThis paper, based on market microstructure theory, examines the influence on the market predictability by the microstructure of the securities market. This study not only help people understand that improving the securities exchange mechanism and improving the information disclosure system and other measures can optimize the microstructure of securities markets, thereby improve the efficiency of China's securities market, providing a basis of China's securities market Trading system's improvement and long-term development of China's securities market.From the perspective of securities market microstructure theory, this study include the following three aspects:(1) we select setting price limits and the implementation of the open call auction mechanism which are just two significant events throughout two decades after establishment of Chinese securities market, and use two multiple variance ratio methods to conduct the empirical research of trading mechanisms and market predictability. It is found that setting price limits has perhaps improved the efficiency of the market and made return unpredicted in the short term; the implementation of open call auction has not improved market efficiency, and even improve the predictability of market return. Trading mechanism has produced a unnoticeable influence on market predictability.(2)Using LSB models shipped to measure the size of information costs of the Shanghai Index and Wanke A, results show that the information cost of Wanke A is far less than the Shanghai index. Then we use BP neural network model to simulate their earnings-per-minute rate and establish networks, predicting the rate of return for some time, the predicted results were compared with the real rate of return. It's found that Wanke A owns a better prediction effect than the Shanghai index. Market information asymmetry may cause greater market predictability.(3) We use the GARCH model to study the impact on the Chinese stock market price fluctuations by market liquidity. The selected sample is still the Shanghai and Shenzhen A share market gains before and after the implementation of price limits and open call auction mechanism's setting.The results show that weak liquidity indicators helps to explain volatility. Liquidity has a negative correlation with predictability. Liquidity also plays a role in influencing the market predictability.