BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 9/2012:
Government intervention and institutional trading strategy: Evidence from a transition country
Yi Yao ()
, Rong Yang, Zhiyuan Liu and Iftekhar Hasan
Abstract: This study investigates the effectiveness of government
intervention in rescuing bearish markets in a transition economy. Focusing
on a pre- and a post-intervention period, the findings reveal that
government intervention successfully rescued bearish markets in China and
led to a fundamental change in institutional trading strategy after the
intervention. We observe that following an intervention, institutions are
more sensitive to long-term stock market regulations, whereas individual
investors are more concerned about the rules related to their short-term
interests. Evidence suggests that a credible signal from the government can
be helpful in creating a positive outcome in the market (Bhanot and
Kadapakkam, 2006). The findings are important to the current debate
regarding the role of government intervention in markets in other
transitional economies, as well as in developed countries.
Keywords: government intervention; institutional trading strategy; (follow links to similar papers)
JEL-Codes: G15; G18; G32; (follow links to similar papers)
50 pages, May 2, 2012
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