Investment Risk And Policy Effect In Stock Market

The research on the stock market in China has become an attractive field of financial management in recent years. Unfortunately, owing to the out-of-date research method and the lack of research condition, the Chinese research is still in its infancy. The research on the relation between investment risk and policy effect in China's stock market is an urgent one to be carried out. This dissertation gives a research on this topic by first introducing some relevant empirical researches which are advanced and famous worldwide, and then discussing some relevant theories in this field, and finally, carrying out several empirical researches based on the current conditions in China. This dissertation studies the following problems in detail: whether the investment risk level will change subject to policy effect in China; the source of stocks' short-term volatility; the stocks' long-term time-varying volatility; China's current efficiency frontier and risk-return trade-off. The dissertation finds out the following conclusion: In China, the investment risk level will change substantially subject to policy effect; the trade in stock market is the source of stocks' short-term volatility; the macroeconomic adjustment is the source of stocks' long-term volatility; there is not any kind of efficiency frontier if short-sale is not available and the current risk-return trade-off is negative. This means investors will pay cost rather than get any return if they invest in China's current stock market. This dissertation tries to find out the rule from within and aims to help China's macroeconomic adjustment. The dissertation argues that Chinese government could and should control China's stock market risk level through macro-policy adjustment. In short-term, Chinese government can control risk level by controlling market trade, in long-term, it can control risk level by macroeconomic-cycle adjustment. The investors want to run-away from stock market and this is the current status in China's stock market. Chinese government shall make much more effort to carry out good policies into stock market, which will build confidence of investors. This will lead China's stock market to a brighter future.