An Empirical Analysis On Formation Mechanism Of Liquidity Stampede Crisis In Stock Market

The stock market is a barometer of the economy.A healthy development of the stock market can promote the good functioning of the national economy.From the perspective of global stock market development,The performance of the stock market was not satisfactory,and sometimes fell sharply.Moreover,both the developed stock markets,such as the United States,and emerging stock markets such as China,showed the general rule of liquidity stampede during the stock market crash.For example,The stock market crash which happened in September 1929 and October 1987 in the U.S.and 2001,2008 and 2015 in china.Such a crash has disturbed the normal operation of the financial market,resulting in huge losses to investors,and is not conducive to the growth of the stock market,resulting in increased linkage between different countries' stock market.In addition,the stock market crash will have an impact on the real economy.The crash has affected investor confidence,inhibiting their spending intentions and leading to a recession.Therefore,the study of the causes of the stock market crash is of great significance.On the one hand,it can provide theoretical arguments for the state to regulate the financial market and avoid the phenomenon of the stock market crash.On the other hand,it can provide reference for investors' investment decisions,so as to choose a better portfolio to avoid risks.As for the reasons for the stock market crash,recent studies have generally concluded that "Investor Endogenous Fire Sale",had led to liquidity stampede,and then a rapid decline in financial markets.Therefore,there are two issues worthy of attention.First,was there an endogenous fire sale in the stock market crash?Second,what caused fire sales in the stock market?The difficulty of studying the first problem is that we do not have direct methods for data collection.By sorting through the literature,we find that Cont&Wagalath(2014)has proposed an indirect approach to test fire sales in the market.Based on this,this article draws on the Cont&Wagalath(2014)testing method,which is the characteristic of this article.This paper studies the' Chinese stock market from June 2015 to August,when China experienced a sharp drop.And test the fire sale phenomenon.which aims to explore if the sale led to the stock market fell sharply China.What's more,this paper further studies what factors contribute to the reduction of the stock market.First of all,this article uses the method of Cont&Wagalath(2014)to test if there is Fire Sale phenomenon during the period of volatility in Chinese stock market in 2015.When the stock price falls,institutional investors face redemption and net pressure,are forced to sell stocks,which cause the stock price fell further,in turn,institutional investors face greater redemption and net pressure,finally lead to the formation of spiral stock decline,the so-called "fire sale".for this phenomenon,Cont&Wagalath(2014)derived the stochastic differential equation of stock price at fire sale price,and put forward the method of checking the existence of Fire sale s in the stock market.Secondly,this paper considers the factors that influence fire sales.such as the stock initial gain,stock price earnings ratio,stock expected performance,institutional investors' stock ownership and margin trading.This paper is divided into the following two parts.Firstly,the test method of Cont and Wagalath(2014)is used to test the fire sale phenomenon of the CSI 300 component stock between June 2015 and August.When the stock price falls,funds and other institutional investors have to reduce the leverage,and are forced to sell stocks,therefore the stock prices fall further,which in turn leads to further deleveraging,and result in the fire sale,and further enhance the stock price correlation.In this process,the stock price no longer obeys the Generalized Wiener process,but obeys a new stochastic process.The difference of the stochastic process is reflected in the stock price correlation,which can be tested by a change in the correlation of stock prices.Therefore we can test the fire sale by checking the change in the stock price correlation.If the stock price correlation increases significantly,there is a fire sale.In this paper,we empirically examine the daily data of closing price and trading volume of CSI 300 component stocks from 2014 to 2016.The results show that there is indeed an endogenous fire sale in the stock market crash in China.Secondly,the regression analysis method is used to test the factors that affect the fire sale of the CSI 300 component stocks.This paper uses cross-sectional data of the CSI 300 component stock between 2014 and 2015.we select the proportion of fire sales as the explained variable.And consider the effects of the stock initial earnings,stock price earnings ratio,stock expected performance,the share holding of institutional investors,margin trading and other factors on the fire sale.And look for the main variables that affect the fire sale.The results show that the share holding of institutional investors has a significant impact on the fire sale.On the one hand,there is an endogenous fire sale in the stock market during its big,rapid and general decline.On the other hand,institutional holdings such as the fund boost the fire sale.