Stamp Duty, Stock Index Futures On Investor Transactions And Stock Fluctuations

Volatility of stock returns is a key variable in various areas of finance yet its determinants are not well understood. Previous research showed that volatility cannot be explained solely by fundamentals, and the determinants of the time series behavior of idiosyncratic volatility are still open to debate. Moreover, the abnormal idiosyncratic volatility and speculative behavior of investors triggers the research of the trading behavior and stock volatility in Chinese capital market."5.30" adjustment of stamp duty and "4.16" introduction of stock index futures received hot discussion in Chinese stock market. This paper tests the event impacts on microstructure trading behavior and stock volatility, respectively, and describes the short-term interactive influence of trading and volatility within each event sample period. Conclusions are as follow:(1) The effects of the stamp duty adjustment on institutional trading were as expected, while the increasing of stamp duty rate increased retail trading so as to increase the stock volatility. The empirical tests showed that the event effects were weaken as individuals acted as "noise traders".(2) The introducing of stock index futures in China significantly dampened听话the trading in short-term period. Meanwhile, the stock volatility still increased. The research proved that the rational component (i.e. contrarian trades rather than momentum trades) resulted in the negative relationship between trading behavior and volatility in the sample period.The research of policy shocks in Chinese capital market showed that the event effects in trading behavior were as expected. However, the unstable relationship between trading and volatility led to the unexpected idiosyncratic volatility. With the better understanding of individual investors and institutional investors, the policy shocks are expected to be under control and the capital market more efficient.