The short history and market segmentation characteristic of China stock markets not surprisingly make the market indicators behave in certain way. In this paper, we tabulate the belief that the regulatory and instrumental policy changes in China structurally break the market indices. This is proven and break points are detected with a focus on Shanghai Stock Exchange in the first part of this paper. Whereas, the stochastic trend nature of the market remains even when the structural breakpoints are detected and after it is tested against various kinds of deterministic trends. It, to some extent, implies the efficiency of Shanghai market with regards to unpredictability. The second part of this paper dedicates to analyzing the interaction between A and B share markets. As a contrast to the past literature, the change in trading volume of B share market is found to be a much more sensitive leading indicator to the change in A share market, in the sense of Granger causality with a VAR fashion. This finding may further reveal the unbalanced investor structure in A and B share markets.

This paper proposes a modification to Minority Game (MG) by adding some agents who play majority game into MG. So it is referred to as Mix-game. Through simulations, this paper finds out that the fluctuations of local volatilities change a lot by adding some agents who play majority game into MG, but the stylized features of MG don’t change obviously except agents with memory length 1 and 2. This paper also uses mix-game to model Shanghai stock market and to do prediction about Shanghai index.

In this paper, we develop an equilibrium model for market liquidity and its impact on asset prices when constant participation in the market is costly. We show that, even when agents' trading needs are perfectly matched, costly participation prevents them from synchronizing their trades, which gives rise to the need for liquidity. Moreover, the endogenous liquidity need, when it occurs, can lead to market crashes in absence of any aggregate shock. We also show that the lack of coordination among agents in the demand and the supply of liquidity generates negative externalities, and the loss in social welfare can out-weigh the savings on participation costs.

This paper proposes a closed form solution for pricing an American put option on a non-dividend paying stock. An American put option grants its holder rights, but not obligation to sell a stock in a fixed price at any time up until maturity. In the past decades, there is no closed form solution for pricing American options although many people made great efforts. In this paper, an optimally early exercise strategy of an American put option on a non-dividend paying stock is set up. That is, an American put option should be early-exercised when the maximum option premium of early exercise is no less than the value of its European counterpart; otherwise, it should not be early-exercised. Based on this strategy, a series of lemmas is proposed and a closed form formula is drawn. Also, this paper shows that Merton (1973)’s formula does not do a good job for pricing perpetual American put options and shows the price of a perpetual American put option on a non-dividend paying stock is equal to the strike price.

In this paper, we construct a new variance bound on any stochastic discount factor (SDF) of the form m = m(x), where x is a vector of random state variables. In contrast to the well known Hansen-Jagannathan bound that places a lower bound on the variance of m(x), our bound tightens it by a ratio of 1=½2x;m0 where ½x;m0 is the multiple correlation coefficient between x and the standard minimum variance SDF, m0. In many applications, the correlation is small, and hence our bound can be substantially tighter than Hansen-Jagannathan’s. For example, when x is the growth rate of consumption, based on Cochrane’s (2001) estimates of market volatility and ½x;m0 , the new bound is 25 times greater than the Hansen-Jagannathan bound, making it much more difficult to explain the equity-premium puzzle based on existing asset pricing models.

There are many factors that affect SMEs’ ability to borrow from bank. Based on facts and data about SMEs’ financing in Chengdu city, capital of Southwestern China’s Sichuan province, this paper is intended to investigate the factors affecting SMEs to borrow from bank by methods of empirical study. We find that whether SMEs can provide collateral or guarantee is a decisive factor, factors such as firm size, willingness to accept bank’s clauses, close relationship with bank play an important role. But in contrast to intuition, correlation analysis and regression result shows that SMEs’ financial variables such as income, net profit, asset-debt ratio and credit score is not obvious to affect their ability to get bank loan. Consistent with theory prediction and qualitative analysis, firm size is the most important factor to affect SMEs’ ability to borrow from bank. The regression results reflect information asymmetry between SMEs and banks, and that banks had taken a simple way to protect themselves.

We axiomatize a new class of multi-prior preferences for decision-making under uncertainty. The unique feature of this class of preferences is that it allows for the role of a reference probability measure. The class of preferences has a tractable representation. It takes the form of minimization, over a set of priors, of an expected utility plus a penalty function that penalizes deviation from the reference probability measure. The preference reduces to the standard expected utility when there is no uncertainty. The paper also discusses some potential applications of the axiomatized preferences.

We study stochastic linear-quadratic (LQ) optimal control problems over an infinite time horizon, allowing the cost matrices to be indefinite. We develop a systematic approach based on semidefinite programming (SDP). A central issue is the stability of the feedback control; and we show this can be effectively examined through the complementary duality of the SDP. Furthermore, we establish several implication relations among the SDP complementary duality, the (generalized) Riccati equation, and the optimality of the LQ control problem. Based on these relations, we propose a numerical procedure that provides a thorough treatment of the LQ control problem via primaldual SDP: it identifies a stabilizing feedback control that is optimal or determines that the problem possesses no optimal solution. For the latter case, we develop an
-approximation scheme that is asymptotically optimal.

We find that short-horizon institutions possess private information on long-term earnings that will be reflected in near term stock prices but do not have private information on long-term earnings that will be reflected in stock prices beyond the near term. In contrast, we find no evidence that long-horizon institutions have private information on long-term earnings, regardless of whether the private information will be reflected in near term stock prices or not. Our results question the notion that long-horizon institutions have a stronger incentive than short-horizon institutions to acquire private information on long-term firm value.

In this paper, we have examined the long memory property of Indian stock market by analyzing the trading volume series. Given the absence of trading volume index data, we have constructed trading volume series for the Indian stock market. We used maximum likelihood method to analyze the constructed trading volume index. The estimation of ARFIMA model, obtained a signicant parameter for the order of fractional integration, and this could be consistent with the long autocorrelations observed in the trading volume series. The ndings that stock trading volume is a long memory process is robust, given dierent estimating methods, different subsamples, temporal aggregation and tests on individual stocks. Because of the conditional heteroscedasticity in the series, we have also carried out ARFIMAGARCH procedures to check whether long persistence were robust in the presence of conditional heteroscedasticity.