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| Can Traditional Regulatory Measures Control the Financial Market Volatility？ |
| WANG Tiandu, SUN Qian
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Tehua Postdoctoral Programme;
Financial Consumer Protection Bureau, the People's Bank of China;
School of Management, Fudan University |
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Abstract Advocates of traditional regulatory measures in financial markets contend that these measures prevent investors from over-speculation and over-reaction, control the volatility, and stabilize the market. While the opponents argue that these measures impede price discovery, reduce the liquidity, and may reinforce the volatility. We analyze the volatility characteristics of the Chinese capital market and decompose it into systematic volatility and excess volatility. By tracking the events of regulatory policy change, we test the impact of six regulatory measures on Chinese stock market, including transaction tax, margin constraint, short-selling constraint, price limit, intra-day trading limit, and IPO limit. We find none of them can reduce volatility but most of them dampen market liquidity. There is also no evidence that volatility leads to policy change.
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Published: 29 October 2018
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