2016/10/12 Contents Chinese financial markets Basic Knowledge in Stock Market Trading Part 3: The stock market Mechanism History of the Chinese Stock Market The Split-share Structure Reform Opening of the Chinese Stock Market Sept. Dec 2016 By Zhang Xiaorong The Stock Market Collapse in Mid 2015 The stock Market The stock market is the aggregation of buyers and 3.1 Basic Knowledge in Stock Market Trading Mechanism (primary market)and traded (secondary market The trade can be done either through exchanges or over-the-counter markets The market can also be a loose network of economic facility or discrete entity The stock Market Liquidity How do you define a"good" stock market? Liquidity is the degree to which an asset or security an be bought or sold in the market without affecting Speed of transaction a market with high liquidity can attract more investors, improve price discovery of securities, and reduce cost of financing. The liquidity of a security can be measured by its w often or turnover The trading volume of a security over its market cap is th2016/10/12 1 Chinese Financial Markets Part 3: The Stock Market Sept.-Dec.2016 By Zhang Xiaorong Fudan University, Shanghai, China 3-1 Contents • Basic Knowledge in Stock Market Trading Mechanism • History of the Chinese Stock Market • The Split-share Structure Reform • Opening of the Chinese Stock Market • The Stock Market Collapse in Mid 2015 3.1 Basic Knowledge in Stock Market Trading Mechanism 3-3 The Stock Market • The stock market is the aggregation of buyers and sellers of stocks, and where shares are issued (primary market) and traded (secondary market) . • The trade can be done either through exchanges or over-the-counter markets. • The market can also be a loose network of economic transactions and does not have to be a physical facility or discrete entity. 3-4 The Stock Market • How do you define a “good” stock market? – Easy access (and exit) – Speed of transaction – Low transaction cost – Information transparency – Low volatility – High liquidity – Etc. 3-5 Liquidity • Liquidity is the degree to which an asset or security can be bought or sold in the market without affecting the asset's price. • A market with high liquidity can attract more investors, improve price discovery of securities, and reduce cost of financing. • The liquidity of a security can be measured by its trading volume (how often it is bought and sold), or turnover. • The trading volume of a security over its market cap is the turnover ratio. 3-6