Managing China's Stock Markets: The Economics of the National Team

We exploit China's great stock market crash in 2015 to study the effects of government stock purchases. The Chinese government purchased stocks to stabilize the market through state-owned financial institutions collectively called the "National Team". We find that the intervention led to reduced trading volume, volatility, and price informativeness. These impacts mainly come from the disclosure of the government portfolio. These results are consistent with limited attention myopic investors acquiring government intervention information instead of fundamental news, leading to homogenized beliefs and reduced information production. The paper suggests some fundamental trade-offs facing government purchase of stocks in a second-best world.

Keywords: Direct government intervention, financial crises, financial markets

JEL Classification: G12; G14; G18

Suggested Citation: Suggested Citation

Dang, Tri Vi and Li, Wei and Wang, Yongqin, Managing China's Stock Markets: The Economics of the National Team (April 5, 2022). Available at SSRN: https://ssrn.com/abstract=3546411 or http://dx.doi.org/10.2139/ssrn.3546411