A Study On Non-tradable Share Reform Of China Based On Evolutionary Games Theory

The existence of Non-tradable Shares used to be a critical obstacle in the development of China's capital market. State-owned Stock Reduction and Non-tradable Share Reform are both reforms aimed at solving this problem, which have led to quite different results. On the basis of previous studies on this issue, the author first makes hypothesis that participants of the games are limited rational, then sets State-owned Stock Reduction and Non-tradable Share Reform into a unified analysis framework, using an evolutionary game model, to reveal the reason why the two reforms led to different results and the dynamic evolution process between them.Firstly, after analyzing the limited rationality of the Government and Investor, the paper proposes that the existence of Non-tradable Shares induced by the limited rationality of Government transmitted a latent guarantee signature to investors, which caused the policy-dependent bias of investors.Secondly, the paper uses the Two-section Reliance Model to analyze the evolutionary games of State-owned Stock Reduction and Non-tradable Share Reform. In the State-owned Stock Reduction stage, the releasing of latent guarantee signature shake the existing investing notion of investors, at the same time, the government lacked the stability to push on the reform, thus forming a double unreliability in investors. Therefore the Reliance Coefficient in the model is very low. Moreover, previous game frequency is very low under such totally new game backgrounds. All these factors result in the (Non-trust, Non-trust) Evolutionarily Stable Strategy, demonstrating the failure of State-owned Stock Reduction.Tn contrast, in the Non-tradable Share Reform stage, the government transmitted a reliable promise signature to investors through its determination and repositioning in the market, as well as full consideration of investors' interests. Such signature is key to the improvement of the Reliance Coefficient in the model, also promoting the government to increase its Reliance Input. Therefore, the game reaches a (Trust, Trust) Evolutionarily Stable Strategy, demonstrating the success of Non-tradable Share Reform.Finally, the paper generalizes the dynamic game process from an institutional perspective, proposing that the institutional change from Non-tradable Shares to Full circulation is, in fact, a changeover from one equilibrium to another equilibrium via repeated games. To investors, this process has seen the collapse and rebuilding of their investing concept, as well as the lost and recovering of their belief to the capital market. To the government, it is a process in which it has been adjusting its responsibility in the capital market and improving its administration method. In this process, rational value-investing concept is gradually accepted, bringing about a prospective change of the pricing mechanism and operating manner of the capital market.