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Government intervention model based on behavioral heterogeneity for China’s stock market

Author

Listed:
  • Zhong-Qiang Zhou

    (Guizhou University of Finance and Economics
    Guizhou University of Finance and Economics)

  • Jie Li

    (Nanjing Audit University)

  • Wei Zhang

    (Tianjin University
    Tianjin University)

  • Xiong Xiong

    (Tianjin University
    Tianjin University)

Abstract

Active government intervention is a striking characteristic of the Chinese stock market. This study develops a behavioral heterogeneous agent model (HAM) comprising fundamentalists, chartists, and stabilizers to investigate investors’ dynamic switching mechanisms under government intervention. The model introduces a new player, the stabilizer, into the HAM as a proxy for the government. We use the model to examine government programs during the 2015 China stock market crash and find that it can replicate the dynamics of investor sentiment and asset prices. In addition, our analysis of two simulations, specifically the data-generating processes and shock response analysis, further corroborates the key conclusion that our intervention model not only maintains market stability but also promotes the return of risk asset prices to their fundamental values. The study concludes that government interventions guided by the new HAM can alleviate the dilemma between reducing price volatility and improving price efficiency in future intervention programs.

Suggested Citation

  • Zhong-Qiang Zhou & Jie Li & Wei Zhang & Xiong Xiong, 2022. "Government intervention model based on behavioral heterogeneity for China’s stock market," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-19, December.
    • Handle: RePEc:spr:fininn:v:8:y:2022:i:1:d:10.1186_s40854-022-00408-8
    DOI: 10.1186/s40854-022-00408-8
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    References listed on IDEAS

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