The Magnet Effect,the Cooling-off Effect Of The Price Limit Trading Rule And The Closing Price Manipulation In The Chinese Stock Market

Under the dual test of the continuous opening up and the steady advancement of the supply-side structural reform towards the financial market,the current trading mechanism de-sign of the Chinese stock market has attracting great interest on whether it can play a role in controlling the macroeconomic,stabilizing the financial security,and preventing the systemic financial risks.This paper is motivated to study the current trading mechanism that is widely concerned by the Chinese stock market participants with the effectiveness of the price lim-it trading rule and the closing price manipulation related to the stock closing price decision mechanism,from the perspective of the financial market microstructure theory and the behav-ioral finance theory.In Chapter 1,we introduce the background,the meaning,the research methods,the re-search ideas,the main content and the innovation of this paper.In Chapter 2,we introduce the research scope,the definition of core concepts,and the literature review related to this research.In Chapter 3,we carry out the basic statistics on all the A-shares stocks listed on the Shenzhen Stock Exchange and the Shanghai Stock Exchange during 2000-2011.The statistical variables mainly include:the numbers and the length of hitting price limits in the trading days.The statistical results show that smaller stocks are more likely to hit the price limits than larger stocks.By examining the opening price immediately after the limit hitting days,we also found that smaller stocks are more prone to price continuation effects.The results can be interpreted as larger stocks taking more participants and better liquidity,which in turn reflects more trading philosophy of different heterogeneous investors,and it is more prone to divergence of ideas.Secondly,from a physics perspective,we examine the dynamic evolution of several other market microstructural variables(trading volume,yield,volatility,and bid-ask spreads)while the price approaches the price limits,to study the micro-dynamic mechanism under the price limit trading rule and price formation mechanism.By examining the micro-dynamic mecha-nism of all variables in this chapter,we find that the price limits will have a cooling-off effect of the Chinese stock market,indicating that there is a cooling-off effect under the price limit trading rule.In addition,we also found that the liquidity when the stock price approaches the up limits is better than the liquidity when the stock price approaches the down limits.In Chapter 4,we use the logit regression to investigate each price limit events from the perspective of the probability of stock price rising up and falling down by analyzing each trade from the opening to the moment that price hits the first limits to examine the cooling-off effect(magnet effect),and that is the effectiveness of the price limit trading rules.The logit regression results show that by analyzing the price formation process in the pre-hit period when the stock price approaches the price limits,we find that the whole sample of the up limits and down limits reflects a cooling-off effect,in other words,the price limit trading rule has played a positive role in the Chinese stock markets.The disposal effect in behavioral finance can well interpret this effect,it is reasonable that when the stock price rises,investors may have lower expectation of the price further rise and will sell the stock,and when stock prnces fall,investors may expect the stock price to reverse,and will hold the losing stocks.In order to measure the enthusiasm of investors in the quotation strategy in the process of stock price is close to the price limit,we add the sub-optimal order effect explanatory factor in the previous Logit model explanatory,and find that sub-optimal orders are an important factor driving the cooling-off effect.The results indicate that the sub-optimal order initiators’ quota-tion strategy tends to be cautious and conservative in the process of the stock price approaching the price limits.In other words,the sub-optimal order initiators(institutional investors with large capital)play a positive role in the healthy development and stability of the stock market.In addition,we also compare the price fluctuations in the different levels of the price limit(in the Chinese stock market,the normal listed stocks rise and fall by 10%,and the ST and*ST stocks rise and fall by 50%in each trading day).We found that under different levels of price limit,the price limit system will still lead to the cooling effect,that is,the cooling effect is in-dependent of the price limit levels.We also found that the normal listed stocks are more likely to have a cooling-off effect than the ST and*ST stocks.In Chapter 5,the price limit has an"advertising effect",and the stocks hit the price limit attract high attention by the investors(the net purchase of investors increases)on the opening stage right after the limit hitting days.The"advertising effect"of the price limit has contribut-ed to the motive of manipulators to manipulate the stock price closed at the limits,so as to be shipped at a high level on the opening stage right after the limit hitting days.Therefore,this paper constitutes the purpose of studying the closing price manipulation with great correlation with the price limit.This chapter begins with the actual conditions of the market manipula-tion and the characteristics of investor behavior.It analyzes the detailed database of the real cases of the manipulation behavior and the closing price manipulation behavior disclosed by the CSRC,and obtains the behavior of the closing price manipulation in the Chinese market.Characteristic information such as group identity identification,manipulation of stock prefer-ences,collaborative manipulation techniques,manipulative deadlines,late-period claims,and"calendar effects".The statistical results show that compared with the market manipulation be-havior,the closing price manipulators account for a higher proportion of individual investors.The preference is not obvious with the size effect(small or large stocks).It is more inclined to short-term manipulation behavior.False declaration and continuous transaction are the most common cooperative use manipulation methods of closing price manipulation.And it is obvi-ous with"week effect","monthly effect"and"quarterly effect".Secondly,from the perspective of the market microstructure,we identify the difference between the manipulation sample combination and the reference sample combination on the cross section(specifically the closing price manipulation trading day),and identify the manip-ulation sample in the time series(the closing price manipulation trading day and pre-estimation window period)the difference in the above.We excavate the characteristic indicators that can identify the combination of the closing price manipulation sample:the trading amounts,the number of transactions,the number of unbalanced transactions and the unbalanced transaction amount on the closing phase of the closing price manipulation days.Finally,we examine that the price limit has an"advertising effect".The"advertising effect"of the price limit attracts the attention of investors,which makes the manipulated stocks have an abnormal transaction amount and a net purchase amount on the opening stage right after the closing price manipu-lation trading days.It makes the price reversal effect is not obvious on the opening stage right after the closing price manipulation trading days(the other closing price manipulation behav-ior will have obvious price reversal effect).We also explains how the manipulators use the"advertising effect”of the price limit to profit from the manipulation strategy called"pump and dump".The closing price manipulation stocks closed at price limits has the advantages of low operating cost,short maneuvering period(one trading day),high winning rate(75.9%),and convenient shipping.This is also the reason for the manipulators in the A-share market.In Chapter 6,we give the summary and outlook.The main policy recommendations of this paper are:1.Cultivate the institutional investor environment and promote the structural inno-vation of market investors.The results of the"sub-optimal order effect"in Chapter 4 indicate that institutional investors are an important driving factor for the"cooling effect"of the price limit trading rule.Therefore,stock regulators should strengthen the cultivation of institutional investors to stabilize the market and promote the orderly development of the securities mar-ket.2.Improve the "smart supervision" mechanism.The research in Chapter 5 shows that the announcement of the administrative punishment decision of the China Securities Regulatory Commission has a lag,which delays the implementation of the punishment.The responsible person has gone or his property has been transferred.At the same time,we find that some ma-nipulators have frequent manipulations of stocks at different time periods.Due to the lack of timely punishment,the possibility of re-implementing market manipulation behavior increas-es.Therefore,the penalties for the operators should increase,so that the punishments can be implemented timely.For example,through the"smart supervision"system,the"suspicious"manipulators are promptly issued warnings to temporarily freeze their accounts’profit,but does not affect other funds transactions in their account.