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Government intervention and institutional trading strategy: Evidence from a transition country

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  • Yao, Yi
  • Yang, Rong
  • Liu, Zhiyuan
  • Hasan, Iftekhar

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 & 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.

Suggested Citation

  • Yao, Yi & Yang, Rong & Liu, Zhiyuan & Hasan, Iftekhar, 2013. "Government intervention and institutional trading strategy: Evidence from a transition country," Global Finance Journal, Elsevier, vol. 24(1), pages 44-68.
    • Handle: RePEc:eee:glofin:v:24:y:2013:i:1:p:44-68
    DOI: 10.1016/j.gfj.2013.03.003
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