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

77 Pages Posted: 27 Mar 2020 Last revised: 2 Aug 2021

See all articles by Tri Vi Dang

Tri Vi Dang

Columbia University - Department of Economics

Wei Li

School of Economics, Faculty of Economics and Management, East China Normal University

Yongqin Wang

School of Economics, Fudan University

Date Written: July 31, 2021

Abstract

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 volatility, trading volume, and price informativeness. These impacts mainly come from the disclosure of the government portfolio.These results are consistent with the heterogeneous beliefs and global game literature, where more consensus reduces trading, and more precise public information undermines information production. The paper suggests some fundamental trade-offs facing government purchase of stocks in a second-best world.

Keywords: Government intervention, stock markets, heterogeneous beliefs, global game

JEL Classification: G12; G14; G18

Suggested Citation

Dang, Tri Vi and Li, Wei and Wang, Yongqin, Managing China's Stock Markets: The Economics of the National Team (July 31, 2021). Available at SSRN: https://ssrn.com/abstract=3546411 or http://dx.doi.org/10.2139/ssrn.3546411

Tri Vi Dang

Columbia University - Department of Economics ( email )

420 West 118th Street
New York, NY 10027
United States

Wei Li

School of Economics, Faculty of Economics and Management, East China Normal University ( email )

3663 North Zhongshan Road
Shanghai, Shanghai 200062
China

Yongqin Wang (Contact Author)

School of Economics, Fudan University ( email )

600 GuoQuan Road
Shanghai, 200433
China
021-65643054 (Phone)

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