Should China Liberalize the Rotary Trading System from the Perspective of Stock Price Idiosyncratic Volatility?——Evidence from a Quasi-natural Experiment Based on the A/B Shares and Sub-industries

doi:10.15936/j.cnki.1008-3758.2020.01.004

Abstract

Abstract:

The two-stage daily data of China's A/B stocks and sub-industries are selected as sample data of the quasi-natural experiments. The Fama-French 5-factor model and DMYZ model are used to measure the stock price idiosyncratic volatility and construct the difference-in-difference models. The effect of the change of rotary trading system on stock price idiosyncratic volatility is studied to explore whether China should fully liberalize the rotary trading system. The results show that in general， the stock price idiosyncratic volatility of A shares is obviously less than that of B shares under T+0， but they are similar under T+1; T+0 raises the stock price idiosyncratic volatility， while T+1 reduces the idiosyncratic volatility. Through further examination of the sub-industries， it is found that except for the transportation， information， and leasing industries， which are not sensitive， the rest of the industries have the same reaction to the different rotary trading systems. Therefore， from the perspective of market stability， it is not recommended that China completely liberalize the rotary trading system at this stage. Instead， Blue Chips of A shares can be used as a pilot， and after the stock market is further matured and stable， it can be considered to gradually liberalize the rotary trade and bring it into line with the international system.

Key words: rotary trading system, stock price idiosyncratic volatility, quasi-natural experiment, difference-in-difference model, Fama-French 5-factor model

CLC Number:

F830

LI Zhu-wei， FU Yuan， YAN Sheng-nan. Should China Liberalize the Rotary Trading System from the Perspective of Stock Price Idiosyncratic Volatility?——Evidence from a Quasi-natural Experiment Based on the A/B Shares and Sub-industries[J]. Journal of Northeastern University(Social Science), 2020, 22(1): 22-30.

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