In order to reveal the impact of securities investment fund behavior on market quality, this paper starts from the perspective of microstructure of the securities market and utilized the transactional accounts of Shanghai Stock Exchange(SSE) to analyze the effect of impact on market quality (including liquidity, volatility and information efficiency) by securities investment funds by applying the cross-sectional model. The empirical result showed that institutionalization of the structure of domestic investors hasn’t improved market quality significantly. The increase (decrease) of positions by funds has significant impact on immediate liquidity and possesses permanent shocking characteristics. Net changes of positions by funds have led to higher hetero-volatility, whereas funds，functioning as institutional investors, do stabilize market to some degree in the adjustment phase of bull market, especially during the market turbulence of “2.27” and “5.30” in 2007; during the rising phases of stock market, the changes of positions by funds will improve market liquidity and enhance informational efficiency of securities market.

This paper investigates the volatility and turnover effects of underlying stocks associated with the introduction of warrants in China’s warrants market. We find that in a derivative market where noise traders dominate, the introduction of warrants increases the underlying stock’s volatility, which cannot be attributed to better information revelation. We also find that speculation on derivatives has a spillover effect on the underlying security. Higher volatility and turnover rate of underlying stocks are associated with higher warrants turnover, larger warrants price deviation from theoretical prices, and longer time to maturity of warrants. Additionally, we find that stocks with covered warrants have higher volatility and turnover than those with only equity warrants. Our paper provides new evidence for the impact of derivatives on underlying assets in the emerging market context.

This paper examines the effects of the agency costs on firm performance in 156 Chinese publicly listed companies with private ultimate owners between 2002 and 2007. The ultimate owners’ agency costs are measured by the divergence between cash flow rights and control rights. Agency costs are shown to negatively and significantly affect firm performance, as measured by Tobin’s Q. A major contribution of this paper is to identify connected party transactions as a channel through which such agency costs exert negative impact firm performance. Evidence from the public record of law violations of those firms lends further support to the “tunneling” view on the connected party transactions. The paper also shows that the larger the divergence, the less likely that firm managers will implement value-increasing industrial diversification. The last finding remains a puzzle.

The increasingly competitive environment in the financial services market has resulted in pressure to develop and utilize alternative delivery channels. A growing phenomenon in financial services is the use of the Internet as a channel for financial services in many countries and there is wide agreement that this channel will have a significant impact on the banking system. The vast opportunities brought by the Internet to the banking industry have therefore attracted much attention from researchers. This study aims to analyze the role, adoption and barriers of Internet banking in the banking system in China. Using a quantitative approach, this study surveyed a sample of senior manager in three major cities namely, Hangzhou, Shenzhen and Chengdu. Using a number of statistical analyses including analysis including T-test, ANOVA, Factor Analysis and Chi Square Test, The study finds that the main role of Internet banking in China is to Increase to Market Share. Another important finding is to Increase profitability. Maintain Competitive Edge and Improve customer service are the main reasons for the adoption of Internet banking by Chinese banks. However, it appears that Security risk constitutes the main barrier to Internet banking.

This paper investigates the hedging effectiveness of the Copper Futures contracts using daily settlement prices for the period from 23 July, 2008 to 3 July, 2009. Different econometric models are used to estimate the optimal hedging ratios of Copper Futures on the Shanghai Futures Market. The hedging performance is firstly analyzed by the OLS regression model, the Error Correction model (ECM) and the Bivariate-GARCH Model. Then the Minimum-Variance Hedge Strategy is adopted to evaluate the statistical models. Secondly this research uses a non-parametrical method, the Genetic Algorithms to predict the hedging ratio based on the historical data. Then finally whether the Genetic Programming could produce better hedging parameters than the standard hedging model will be revealed.

In this paper, on the premise that the expropriation of corporate assets by controlling shareholders would generate a residual loss, we studied how the laws of investor protection influenced on the decentralization of corporate ownership, the penalty and the cost of litigation. There are several interested conclusions we reached. At first, the effective protection of minority shareholders will lead to the decentralization of ownership, which is irrelevant to whether there is litigation cost or who should pay the cost. Second, if litigation costs remain unchanged, effective minority shareholder protection laws will evolve along a self-reinforcing path. On the other hand, if the penalty remains unchanged, effective minority shareholder protection laws will cause litigation costs to increase over time. These conclusions are irrelevant to who pays the litigation cost. Last, pay the cost by minority shareholders or controlling shareholders will cause litigation costs to increase or decrease with the penalty.

Based on a compound random process including geometric Brownian motion and Poisson process, we established a model which can describe the environmental uncertainty more flexible. And then, we use a stochastic optimal control model to address the issue of resource allocation. Our study conclusions indicate the following: (1) if rare events can be described using a Poisson process, then the fixed-point theorem can be used to solve resource allocation scheme; and (2) if a certain asset or a certain department’s facing a rare event leads to a reduction in value, then the rare event will not only affect investment in this asset or department but will also have ramifications for investment in related assets or departments. After that, we briefly discuss the resource allocation issues of financial institutions and manufacturing enterprises. The results show that the uncertain, flexible environmental of financial institutions can improve the efficiency of asset allocation. Manufacturing companies can respond effectively and positively to such uncertainty through a flexible asset allocation strategy. The contribution of our paper lies mainly in its use of new methods to describe uncertainty. When we re-define the environment of uncertainty, the flexible resource allocation scheme can effectively mitigate the impact of random adverse effects of the environment. In addition, if the description methods are closer to the facts themselves, then the scheme for flexibility in resource allocation may also bring about an excess return.

In this paper, based on Acharya and Pedersen’s [Journal of Financial Eco- nomics (2006)] overlapping generation model, we show that liquidity risk could influence the market risk forecasting through at least two ways. Then we argue that traditional liquidity adjusted VaR measure, the simply adding of the two risk measure, would underestimate the risk. Hence another approach, by modeling the liquidity adjusted returns (LAr) directly, was employed to incorporate liquidity risk in VaR measure in this study. Under such an approach, China’s stock market is specifically studied. We estimate the one-day-ahead “standard” VaR and liquidity adjusted VaR by forming a skewed Student’s t AR-GJR model to capture the asymmetric effect, non-normality and excess skewness of return, illiquidity and LAr. The empirical results support our theoretical arguments very well. We find that for the most illiquidity portfolio, liquidity risk represents more than 22% of total risk. We also find that simply adding of the two risk measure would underestimate the risk. The accuracy testing show that our approach is more accurate than the method of simply adding.

This paper investigates the impacts of background risk on investors’ portfolio choice in a mean-variance framework and analyzes the properties of the selected portfolio and investors’ hedging behaviour. Our model implies that the optimal portfolio with background risk can be separated into two independent components: the traditional mean-variance optimal portfolio and the self-financing portfolio constructed to hedge against background risk. Our results show that both the composition and risk of the optimal portfolio are greatly affected by a number of background risk factors, including the quantity and risk of the assets that are exposed to background risk, as well as the correlation between background assets and those in the portfolio.

This paper investigates CEO pay and pay-performance relationship in China’s listed firms. We distinguish four firm types based on their controlling owners: state owned enterprises affiliated with state asset management bureaus (SAMBs), state owned enterprises affiliated with the central government (SOECGs), state owned enterprises affiliated with a local government (SOELGs), and private firms controlled by private investors. We also distinguish between firms with foreign investors and those without. Because the different types of controlling owners have different objectives, motivations, and political interests, they affect managers’ compensation in the firms in which they invest. Our results indicate that CEO pay is lowest in SAMB controlled firms and highest in SOECG controlled firms. Not only is CEO pay positively associated with firm performance, the positive pay-performance relationship is stronger in both types of SOE firms but weaker in privately controlled firms. In addition, firms with foreign investors compensate their CEOs more highly than those without foreign investors, an effect that is significant in both SOEs and privately controlled firms. Overall, the evidence suggests that CEO compensation in China is jointly determined by firm performance, market-oriented reform and the unique ownership structure, meaning that standard theories of efficient compensation contracts may not apply in such emerging markets.