||The dissertation analyses several important factors of China stock market volatility, which hit a historical high in 2005 and soon fell back to normal level in 2008.
In May 2005, Chinese government enforced equity division reform policy that fostered healthy institutionalization and stable development of stock market. In July 2005, because of the exchange rate policy reform, Ren Min Bi (RMB) was pegged to currency basket, resulting in RMB’s appreciation and hot money inflow. Meanwhile, Chinese government decided to control overheated housing market, hence capital inflow veered to stock market. Moreover, high saving rate, blooming economy and undergoing laws reformation all encourage investment in Chinese stock market. Consequently, Chinese stock market shot a mark-up and peaked at 6124 points on October 16, 2007.
With stock market boost, irrational investment appeared, that causes the over-optimistic stock market in October 2007, with abnormal increase scope of 527% and P/E ratio of 60. Under the circumstances, Chinese government proposed a series of macroeconomic control policies, including tight monetary policy and raising stamp duty, to curb the unleashed stock market. Chinese stock market afterwards was seriously affected by US sub-prime mortgage crisis and follow-up global economic downturn. Within 12 months, Chinese stock market has plummeted by 70%.
Nowadays, Chinese stock market has been in the spotlight, and through the exploration and analysis of the dissertation, the volatility of Chinese stock market, the reasons behind the scene as well as the development of Chinese stock market during 2005-2008 could be clearly examined.