Stock Transfer Modes and Extreme Return Risks: Economic Consequences of the Introduction of Market Making Mechanism into the New Third Board

Chen Hui, Gu Naikang

Journal of Finance and Economics Vol. 43, Issue 05, pp. 117 - 129 (2017)  DOI:10.16538/j.cnki.jfe.2017.05.009

Abstract

The transaction link is paid little attention to in the studies of the generation mechanism of extreme return risks, and the effects of market making transfer system on extreme return risks are usually neglected in existing empirical studies of the implementation effect of market making transfer system. Based on transaction link, this paper proposes a new hypothesis to explain the generation mechanism of extreme return risks, and introduces market making mechanism into the New Third Board to empirically explore the relationship between stock transfer modes and extreme return risks. It comes to the following conclusions: firstly, compared with stocks transferred by agreement, extreme return risks of stocks transferred by market making are significantly low, but more market makers do not bring significantly lower extreme return risks; secondly, the inhibitory role of stock transfer modes in price jump risk is stronger in the bear market, and the inhibitory role of stock transfer modes in price crash risk is stronger in the bull market; thirdly, the effect of stock transfer modes on extreme return risks exert mainly through stock liquidity path, and information effectiveness path plays a role mainly owing to high correlation between information effectiveness and stock liquidity. These empirical results above are still robust after using treatment effect model to control the effect of self-selection bias, using different indexes of extreme return risks, extending calculation window of extreme return risks and so on. It shows that transaction link is an important factor affecting extreme return risks, and the introduction of market making transfer system is beneficial to the reduction in extreme return risks of companies listed on the New Third Board. It is of great significance to deep understanding of the generation mechanism of extreme return risks and the improvement of transaction mechanism on the New Third Board.

Keywords

market making transfer; transfer by agreement; price jump; price crash; extreme return risk; the New Third Board