The research of trading mechanism of China’s capital market
【Abstract】As the largest emerging stock market in the world, China’s stock market has distinct Chinese characteristics. The T + 1 trading mechanism and the price limit rule also have its particularity compared with other international stock markets. China’s stock market is the only one that adopts T + 1 trading mechanism, which means that investors buy stocks cannot sell on that day. But after 20 years development of stock market, especially the 2015 stock market crash and trading curb in January 2016, we found that there are still problems about the T + 1 trading mechanism in China’s stock market. For example, after the implementation of Shanghai-Shenzhen-Hong Kong stock connect and Shanghai-London stock connect programs, the Hong Kong stock market cannot be fully connected to the stock market in Chinese mainland. It also has internal conflict between stock index future market, where has implemented T + 0 trading mechanism. Scholars have gradually realized that the T + 1 transactions that had been taken to curb excessive speculation were likely to produce new risks. Therefore, we focused our study on these issues. We examined the impacts of T + 1 trading mechanism in a new way from the perspective of overnight returns. Under the T + 1 trading mechanism, investors buy stocks cannot sell on that day. This unrealized transaction can only be reflected in the opening price the next day, so the study on the next day’s opening returns can directly reveal the impact of T + 1 trading mechanism behind this transaction. Overnight returns are traces left by the trading mechanism of T + 1. With the overview of overnight returns, we have realized the direct study of the impact of the T + 1 trading mechanism. This new method proposed in this paper is one of important contributions and innovations of our research. Through this approach we find that overnight returns in Chinese stock markets are usually negative under the T + 1 trading mechanism. We find the overnight return is a good proxy variable for the T + 1 trading mechanism in China’s stock market. Comparing with other stock market, we find that the overnight return of China’s stock market is significantly negative, while it is almost equal to 0 in the stock index futures market and other international stock markets. Moreover, the T + 1 trading mechanism has a greater impact on stocks which have investors with greater disagreement, higher risk, higher proportions of individual investors, higher arbitrage restrictions and more illiquidity, resulting in a greater decline in the open price of stocks. The T + 1 trading mechanism distorts the stock price formation mechanism and creates a situation of long period of bear market and short period of bull market. It makes the stock market crash and trading curb in 2015 worsen, and is not conducive to the individual investors. This paper also finds firstly that there exists great difference of overnight returns of Chinese A and H shares cross-listed companies. The overnight returns of A and H shares cross-listed companies in the Chinese A-share market are typically negative and significantly lower than those in the H-share market. The unique trading mechanism brings out obvious daily price patterns in Chinese A-share market. Therefore, the T + 1 trading mechanism can be abandoned and make the T + 0 trading mechanism restored. We can start by setting up pilot of particular stock that contained in the CSI300 or MSCI, and then spreading the T + 0 trading mechanism to the whole stock market. Learning from the institutional arrangements, investor access, account classification and trading frequency of the T + 0 trading mechanism of the mature stock market, regulators in China’s stock market should carry out various institutional arrangements, appropriately strengthen the education and management of investors, and carry out the T + 1 trading mechanism gradually.
【Keywords】 T + 1 trading mechanism; overnight returns; stock market;