| Market volatility is the core issue of securities market research. In China, facing dramatic market fluctuation, both the government and investors are concerned deeply with how to lower the market risk. Some measures, such as setting price ceiling & floor, adjusting trading taxes, have been adopted to stabilize the stock market and to create a sustainable market environment. Factor analysis is critical in study of market volatility. According to general opinions, there are three types of factors influencing volatility---fundamental factors, stock trading activity, and institutional factors. There is no comprehensive study on domestic stock market yet, although some researches on individual factor are available. This paper tries to study the impact on market volatility by factors of macro-economy policy, market trading rule and trading activity, in order to get a comprehensive understanding of all relevant factors and a better market institution design. According to modern financial theories, an asset has its intrinsic value. Under a market mechanism, capital will be allocated efficiently based on efficient pricing activity. With the rise of micro-structure theory, the focus of modern financial research has shifted from asset pricing theories to specific trading process to unveil the effect of micro-structure---trading order types, order input method, price finding, information disclosure and market stabilization measures, on asset pricing. Micro-structure factors have a direct impact on liquidity, transaction cost, information reliability and price volatility of securities market, further influencing internal operating efficiency and external pricing efficiency of securities market, and finally determining the efficiency of market capital allocation. In theory, securities market represents a typical competitive market mechanism with a similar pricing process of Walras' Equilibrium. Aggregate auction, which determines trading price by periodic auction, is compliant to Walras' Equilibrium. Contrast to aggregate auction, other pricing mechanisms such as continuous auction under market maker system will suffer due to the flowing trading orders that are matched by market makers to finally form the market prices. This paper tries to conduct a thorough research on factors influencing stock market volatility. By OLS and case analysis, a quantitative study has been done to the relationship between each factor and the market volatility. Some conclusions have been reached as follows: A shift from expansionary fiscal policy to moderate fiscal policy does not impact significantly on stock market. At the same time, adjustment of trading tax rate has an obvious effect due to its direct impact on trading activity. Central bank's open-market-operations have significant impact on capital market by influencing the market interest rate of capital, mainly due to the money-driven nature of domestic stock markets. The phenomena of pre-reaction to future fiscal policy in securities markets indicate the existence of speculation on policy. Meanwhile there may be some overreaction and underreaction. The increase of reserve requirement rate or prime interest rate will decrease the securities market price, and vice versa. This is related to the passive-adjustment nature of domestic fiscal policy. Regarding to institution, the enactment of price-ceiling and price-floor tends to temporally enlarge market volatility due to pressure from regulator, while in the long run decrease the market fluctuation. The price volatility of a stock is negatively related to its price, market... |
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