The bailout logic of the national team

Xiang Shuai said

Recently, watching the rescue of the A-share market, I feel a little ridiculous.

There are two cores of bailing out the market, one is to save the emergency, that is, to save liquidity, and the other is to save the mentality, that is, to reverse expectations. The financial market is a typical self-fulfilling market, and it is necessary to turn the mood from killing to chasing the rise, so as to hold the market.

In fact, judging from the current market, there is no problem with liquidity. When there is a big problem with real liquidity, it is often the joint reaction of multiple markets, stocks, bonds, foreign exchange, and commodities, and the prices of all assets plummet. Because many leveraged products need to be replenished, they can only sell other assets at a low price, and then continue to trigger a chain reaction. For example, the subprime mortgage crisis in the United States in 2008 and the A-share stock market crash in early July 2015 are typical.

So the key now is to reverse expectations. There are three main points in reversing expectations:

The first is early. It is easy to act before the expectation becomes obsessed;

The second is to be ruthless. Human beings are animals that follow the trend, three yang lines change three views, three do not work on five or seven - whether investors really change their expectations or arbitrage, behavior will definitely change, produce a new information waterfall, and reverse the direction of the market.

The third is to make trouble. To fully communicate with the market, it is best to be known to everyone. You see, the United States has a big bailout that is not the president, at least the chairman of the Federal Reserve, and said categorically, we have money, we give money, resolutely give real money, should give everything, whatever it takes.

The market is like a battlefield, the three armies have not sent grain and grass first, and the grain and grass have not moved the horn all over the sky. The morale is high, coupled with the fact that the grain and grass are really abundant, and it is natural to have a rainbow momentum against the enemy. If you want to take advantage of the enemy's shrinking head, it is estimated that an advance team will kill people.

What are you afraid of?

If you are afraid of being late, and when you are expected to start a rout, the price will not be half a star.

Second, I am afraid of picking and searching. Picking search is a Northeast dialect, which describes a small pattern of doing things and being a person. It's like playing cards, obviously four threes of bombs, not out, you have to have a three, a pair of three, and then a three so out. It's still a four-three, but the result is predictable. I have a good buddy who said that he saw mystical powers like "everyone is a sharpshooter, and every bullet kills an enemy". The problem is that there is only one bullet a day in the gun of the mysterious force. If you can't bluff people, it's more troublesome.

Three fears that silence is golden. At the juncture of bailing out the market, the government, brokers, funds, including stockholders, are actually wearing a pair of pants. Therefore, there must be transparency in information, funds, brokers, and central enterprises...... Everyone is ventilated and contributed. Let the gossip fly all over the sky like wings. There are waves before there is movement. If you smash a few hammers with your head, you don't ask about things and things, you don't know the north and south, you don't know the depths, and the friendly troops don't dare to move because they don't want to save their lives. Think about it, with a whole voice, announcing an economic climbing plan of no less than 10 trillion yuan, plus an interest rate cut of no less than 50 basis points, you can see whether it is stable or not. The enemy might have crawled out of the trench to join us. How can there be an eternal opponent in the capital market, and if you can't beat it, you will be a firm ally.

In short, even if you stay out of the matter now, you can scratch your head. You know, historically, whether it's the United States, China, or Taiwan, the government's bailout is actually quite a lucrative thing. After all, when you save it, it will be the bottom of the local area, and most of the success will be full. For example, the Hong Kong Monetary Authority's direct purchases during the Asian financial crisis drove the Hang Seng Index to rise by 48% from August to December that year.

But looking at the current situation, don't really become a rare case of losing money in history to save the market, and you can see that you are in a hurry.

In fact, there is one thing to say, the bailout in 2015 is worth studying. Although it is not the same as this year. It is true that the market was too highly leveraged in 2015. At that time, the out-of-the-field allocation was estimated to be 4 trillion, and there were many interlayers in the middle, which was larger in scale and risk than the current snowball products. Therefore, when regulatory changes lead to a sharp decline, it leads to a collapse of leverage, a liquidity spiral, and finally a simultaneous collapse of multiple markets. We had a research team at Peking University back then, and we watched the market every night on the 7th and 8th to write reports. It was really exciting, watching the exchange rate, funds, stocks, bonds, and even commodities all plummet. There is a friend of CITIC Futures, who looks like he is crazy. At that time, I was really young, and I didn't close my eyes for three or four nights, so I hurriedly wrote a rescue report on the strong injection of liquidity. Later, after the bailout officially began, I followed Chen Jing, a doctoral student at the time and now a young professor at Agricultural University, for a while. Her later doctoral dissertation was entitled "Research on the 2015 Stock Market Crisis", which carefully analyzed the evolutionary logic, circuit breaker, and the mechanism and impact of the bailout.

Lots of interesting details and conclusions.

Globally, government bailouts are not uncommon in stock market crises. Diamond and Rajan (2005) have summarized government intervention in financial crises as liquidity injections and recapitalization. Liquidity injections are an important experience gained in the wake of the banking run in the United States in the 1930s (Diamond and Dybvig, 1983), and were repeatedly used in the 1987 stock market crash and the 2007 subprime mortgage crisis. The re-injection has been adopted by the governments of Hong Kong, the United States, and Japan, among which the $700 billion U.S. Troubled Asset Rescue Program (TARP) during the subprime mortgage crisis was the largest government injection program in their history (Bayazitova and Shivdasani, 2012), which was considered a cost-benefit ineffective act by Veronesi and Zingales (2010).

The entry of the national team into the market in the 2015 stock market crash is the latter kind of government bailout, but unlike the United States through the Treasury Department's injection of capital into commercial banks, the national team led by Securities and Huijin directly purchases assets in the secondary market. Although the Hong Kong Monetary Authority had previously purchased 33 stocks through foreign exchange funds in 1998, it was not as influential as the mainland national team in terms of overall scale and scope of stock purchases.

The 2015 bailout was actually the government's largest bailout plan for the stock market in China's history, including a package of bailouts that included interest rate cuts, suspension of IPOs, pledges not to reduce holdings, and a ban on short-selling futures. Among them, in early July, the national team represented by Securities Finance Co., Ltd. (Securities Finance Company) and Central Huijin Investment Co., Ltd. (Huijin Company) directly entered the market to buy individual stocks in the secondary market, which cost trillions of yuan, which was considered to be a shot in the arm for the stock market and greatly alleviated the collapse of market investors. At the same time, the trend of the national team's huge bailout funds also profoundly affected the market subsequently.

The fourth chapter of Jing's doctoral dissertation, "Details and Impact of the Trillion-Dollar Rescue in the A-share Market in 2015", examines the national team's rescue action in detail and answers the following questions——

1

How does the national team's bailout fund enter the market, and what is the distribution of individual stocks?
2

What factors have influenced the national team's asset increase to save the market?
3

What is the pricing impact of the national team's ownership on stocks?
4

After the trillion national team entered the market, under the pressure of the debt side, what was the national team's reduction action?
5

What did the national team save and what changed the listed company?

Her findings found that:

(1) In the 2015 bailout, the securities and gold system and the Huijin system increased their holdings in 1,275 companies in the third quarter of 2015, with a market value of 2.34 trillion yuan, accounting for 6.93% of the circulating market value of A-shares. The market value of the stocks held by the national team, especially the securities system, is large, the market value book is relatively low, and the asset-liability ratio is high. In terms of industry distribution, the national team's increased holdings accounted for the highest proportion of the banking industry's increased holdings, reaching 14.73%.

(2) Among the factors influencing the increase in holdings of the national team, the state-owned holding attribute has a significant impact on the decision to increase the holdings of the securities system. Secondly, the national team prefers stocks with large declines, high dividend yields, high equity concentration, and high market price sensitivity in the stock market crash, and the greater the distribution of the national team's holdings of funds in these stocks.

(3) From the perspective of pricing impact, the national team's ownership has created significant excess returns in the short term, among which there is a significant difference between the portfolio performance of the securities company itself and the portfolio performance of the securities public fund. The buying behavior of securities companies generated higher excess returns, partly due to the capital drive. The chart below illustrates the difference in pricing between bailouts and non-bailouts.

(4) In the post-crash reduction actions, the reduction behaviors of different bailout entities in different quarters are quite different, and the securities and finance system is more inclined to reduce the holdings of stocks with greater volatility and market capitalization, while the reduction actions of the Huijin system have no significant relationship with volatility and market value, and the Huijin system prefers to reduce the holdings of stocks with lower yields.

(5) The rescue action of the national team has greatly improved the liquidity of the market and reduced the volatility in the stock market crash, and in the long run, it has no significant impact on the investment and financing behavior of the listed companies themselves.

The relevant chapters of the doctoral dissertation excerpted from the following article, among which, the literature review part, have the experience of China, the United States and Japan in rescuing the market. The market background part describes the market background at the time of the bailout and the details of how to enter the market. The empirical part discusses the five aspects of the national team's position analysis, the analysis of shareholding decisions, the analysis of the impact of entering the market, the analysis of the reduction of holdings, and what the national team is saving. (The follow-up part contains a relatively high academic content, please feel free to see the official)

In 2015, the A-share market was rescued by trillions of yuan

Details and impacts

(Excerpt from Chapter 4 of Chen Jing's doctoral dissertation "Research on the 2015 Stock Market Crisis")

introduction

After the 2015 stock market crash, a package of bailout actions, including interest rate cuts, suspension of IPOs, pledges not to reduce holdings, and banning short-selling of futures, was the largest bailout plan for the stock market in China's history. Among them, the national team represented by China Securities Finance Co., Ltd. (Securities Finance Company) and Central Huijin Investment Co., Ltd. (Huijin Company) directly entered the market to buy individual stocks in the secondary market, which cost trillions, and was considered by the market to be a shot in the arm for the stock market in early July, which greatly alleviated the collapse of market investors. At the same time, the trend of the national team's huge bailout funds also profoundly affected the market subsequently.

This is not the first time that such government bailouts have been carried out globally, as Diamond and Rajan (2005) have mentioned that during the financial crisis, government intervention in all markets can be summarized as liquidity injections and recapitalization. Liquidity injection is an important experience gained in the United States after the banking run in the 1930s (Diamond and Dybvig, 1983), which was repeatedly used in the 1987 stock market crash and the 2007 subprime mortgage crisis, and has also been used by many emerging markets. The latter recapital injection has been adopted by the governments of Hong Kong, the United States, and Japan, among which the $700 billion U.S. Troubled Asset Rescue Program (TARP) during the subprime mortgage crisis is the largest government injection program in their history (Bayazitova and Shivdasani, 2012), which is considered by Veronesi and Zingales (2010) to be a cost-benefit invalid.

The entry of the national team into the market in the 2015 stock market crash in mainland China belongs to the latter kind of government bailout, but unlike the United States through the Treasury Department's injection of capital into commercial banks, the national team led by Securities and Huijin directly purchases assets in the secondary market. Although the Hong Kong Monetary Authority had previously purchased 33 stocks through foreign exchange funds in 1998, it was not as influential as the mainland national team in terms of overall scale and scope of stock purchases. Theoretically, Shleifer and Vishny (2010) found that in a financial crisis, when institutions are selling large amounts of assets and liquidating collateral to ease liquidity, it is the best arrangement for the government to bail out the market and increase the price of assets. In practice, however, due to the paucity of data on the financial crisis (Gorton, 2012), the true impact of government refunding bailouts and possible boundaries are barely discussed, although important.

Starting from the study of the national team's rescue actions, this chapter analyzes the securities and financial systems dominated by securities companies, the five major public funds, and the top ten asset management plans, as well as the market entry and positions of the Huijin system dominated by Huijin Company and Huijin Asset Management, in the stock market crash. In the subsequent empirical evidence, this chapter attempts to answer the following questions: What is the distribution of the national team's bailout funds in the market? What factors affect the national team's asset increase in the bailout? What kind of impact does the national team's ownership have on stocks? After the trillion national team enters the market, what is the national team's action to reduce its holdings under the pressure of the debt side? What exactly does the national team save and what changes the listed company after a bailout action?

The findings of this chapter are:

(1) In the increase in holdings in the national team stock market crash, the securities and gold system increased their holdings in 1,275 companies in the third quarter of 2015, with a market value of 2.34 trillion yuan, accounting for 6.93% of the circulating market value of A-shares. The market value of the stocks held by the national team, especially the securities system, is large, the market value book is relatively low, and the asset-liability ratio is high. In terms of industry distribution, the national team's increased holdings accounted for the highest proportion of the banking industry's increased holdings, reaching 14.73%.

First, this chapter analyzes and summarizes the largest government asset purchases in the history of the global financial crisis, enriching the experience of government bailouts in developed and emerging markets. Second, this chapter provides empirical evidence for the government's asset purchase bailouts proposed by Shleifer and Vishny (2010), which is different from the estimates of Hoshi and Kashyap (2010) and Veronesi and Zingales (2010) at the total funding level. Thirdly, due to the pressure on the debt side of the national team, the national team has seen a large number of rapid actions to reduce its holdings after the bailout, and this chapter analyzes the impact of the national team's overweight, holding, and reducing its holdings in a complete bailout cycle, and makes up for the empirical evidence in this regard.

The second part is a literature review, which summarizes the existing research literature from the perspectives of financial crisis and government bailouts, and government bailout measures and experiences. The third part is the market background, which describes the market background at the time of the bailout, and introduces who the main body of the national team is, and how to enter the market. The fourth part is the empirical results, which are discussed from five aspects: the analysis of the national team's position, the analysis of the shareholding decision, the analysis of the impact of entering the market, the analysis of the reduction of holdings and what the national team is saving. The fifth part is the conclusion of the study.

Literature review

2.1 Financial Crisis and Government Bailouts

The first question to be discussed is what is a financial crisis, and the answer to this question has a profound impact on the government's decision on whether or not to bail out the market, because the first step in bailing out the market is to think about what kind of market failure is going to happen (Acharya, Philippon, Richardson and Roubini, 2009). According to Diamond and Dybvig (1983), when many depositors withdraw their deposits from banks at the same time due to panic and short-term liquidity needs, a sudden massive run will make banks liquidate their assets at a discount, which can easily bankrupt banks and fall into a liquidity crisis, and may cause problems in the real economy, because the emergency recall of loans by banks may lead to the stagnation of production and investment. Gorton (2012) argues that the financial crisis is not only a single bad state faced by the market, but also a crisis in which the market switches to a completely different mode from the usual state, becoming a systemic event that puts the entire financial system in check. Schwartz (2007) argues that "the decline in the price of stock prices, real estate, commodities and other assets, the depreciation of currencies, and the risk of bankruptcy of real enterprises, financial institutions, and governments may all be fake financial crises". The systemic principle is an important criterion for judging a crisis. In practice, the Financial Crisis Inquiry Commission (2011) report mentions that Bernanke found out in September 2008 that 12 of the 13 systemically important banks at that time were at risk of bankruptcy and could fail within 1-2 weeks, and therefore considered '08 to be the worst financial crisis in U.S. history.

In the midst of a financial crisis, should the government bail out the market? On one side, the view is that it is necessary to bail out the market. Diamond and Dybvig (1983) argue that if the Lender of last resort does not bail out, then a change in depositors' expectations of bank credit quality would be enough to create a financial crisis – when depositors anticipate that future lenders of last resort will not be willing to bail out failed banks, depositors will immediately start a run, which was the tragic result of the Fed's misjudgment in the 1930s. Diamond and Rajan (2005) argue that bank failures are contagious and can lead to the failure of the financial system, and that government intervention and bailouts can make a difference given the high cost of bank failures. They found that if the banks simply had a solvency problem, then the government's liquidity injection would be of little use, but if it was a liquidity shortage, the government's liquidity injection would save all financial institutions. Shleifer and Vishny (2010) found that the liquidity of financial institutions is tight in a crisis, and on the other hand, when institutions are selling a large number of assets and liquidating collateral to relieve liquidity, the government bails out the market and makes the asset price rise, which can ease the pressure on banks to liquidate assets, so that banks can restart lending services and allow investment in the real economy to continue.

Scholars on the other side argue that the market should not be bailed out. Ennis and Keister (2009) found that an individual's decision to run depends heavily on expectations of the government's response, and that a self-fulfilling run will not occur if the government is expected to freeze all deposits immediately. However, when the government is not expected to commit to a strong bailout, government intervention will amplify the possibility of a run on depositors in advance, which is actually detrimental to market stability. Gertler, Kiyotaki and Queralto (2012) argue that the expectation of a government bailout will reduce the risk perception of banks, which will become more reliant on short-term debt and engage in riskier investment activities, which in turn will make the financial system more fragile and create too big to fail problems (Morrison, 2011). In addition, Farhi and Tirole (2012) refer to the problem of collective moral hazard in bailouts, where the government is forced to provide refinancing facilities when each individual faces a term mismatch, and whoever does not participate will have a lower return on equity. Morrison and White (2013) found that when governments act with the goal of maximizing welfare and are trusted, government private bailouts protect their reputations. Public rescue will inevitably damage the credibility of the government and will drive the government to regulate the market with other high-cost measures, such as increased capital and better deposit margin coverage.

In the discussion of the rationality of the mainland's 2015 national team bailout, Gao Shanwen (2015) argued that the rapid depletion of liquidity in the financial market and the inability to repair itself are the fundamental reasons for the government's bailout. Wang Jian (2015) argues that the priority funds for leveraging are from systemically important financial institutions such as brokerages and banks, and if the market is not rescued, the liquidity crisis of the stock market crash will endanger these systemically important financial institutions. Qian Jun (2016) believes that although the interests of banks and the stock market have become very close through the channel of leveraging the stock market through equity pledges and wealth management products, banks hold priority assets, which are less exposed in terms of volume and risk, and Qian Jun does not believe that the stock market crash in July has reached the extent that the government must rescue the market. Liang Dingbang (2016) believes that in the case of 1,000 shares falling limit, fund redemption, and extremely pessimistic market sentiment, the CSRC lacks systematic information to make judgments, and second, it has little room for choice.

2.2 Government rescue measures and experience

All government intervention in financial markets can be seen as a combination of liquidity injections and reinjections (Diamond and Rajan, 2005). This chapter mainly discusses the relevant literature from the three international bailout experiences of (1) liquidity injection, (2) direct government purchase, and (3) temporary revision of the rules:

(1) Liquidity injection

When a crisis occurs, central banks, as lenders of last resort, have an obligation to ensure that they can significantly improve the liquidity of financial institutions as well as financial markets (Rochet and Vives, 2004; Krishnamurthy, 2010）。 For example, in the subprime mortgage crisis, the Fed announced on August 17, 2007, early in the crisis, that it would reduce the discount rate from 6.25% to 5.75%, cut interest rates by a total of 75 basis points in September and October, and then entered a cycle of continuous interest rate cuts, cutting interest rates to 1.0% on October 29, 2008.

The 2015 stock market crash in mainland China was forced by the China Securities Regulatory Commission to go to the over-the-counter financing disk leverage as a fuse, and the leverage amplified the stock price decline and decline speed in the stock market crash, which is the most comparable to this stock market crash in history, in fact, the 1987 stock market crash in the United States. In the 1987 stock market crash in the United States, the market value of stocks plummeted by 20% in a week, and the main culprits were firstly programmatic trading, and secondly, investors increased their leverage through financing transactions (Seguin and Jarrell, 1993). The most striking thing in the bailout process was the massive amount of liquidity released by the Fed that rebuilt market confidence (Carlson, 2007). On the morning of October 20, 1987, the Fed issued a statement that strongly supported market liquidity, which was considered a shot in the arm by many market participants (Murray, 1987), and this statement gave the NYSE market its first early rally after a series of deep declines (Brady Report, 1988). Immediately afterward, the Fed operated in the open market to provide a large amount of liquidity and mitigate market shocks, reducing the federal funds rate from 7.5% to 7% (FOMC Transcripts, 1987) and lending an hour earlier if necessary (Winkler, 1987). The Federal Reserve also cooperates with banks to provide credit extension and liquidation extension services for brokerages and market makers. Greenspan (1994) mentions that it is this close communication between the Fed and the banks that ensures that clearing house members have a continuous supply of credit and submit margins. The Fed also extended the closure of Firewire several times in order to settle the borrowings of banks and securities firms (Greenspan, 1988). In hindsight, from the perspective of the Fed and the banks, there is a loss in lending these loans during a stock market crash, otherwise the Fed would not have been able to try to persuade and facilitate the deal, but from the perspective of protecting the market as a whole, lending is optimal at this time (Bernanke, 1990).

(2) Direct government purchases

From August 14 to August 28, 1998, in order to curb the downward pressure of international speculators on the stock market, the Hong Kong government used foreign exchange funds to directly enter the market and bought a large number of 33 constituent stocks in the Hang Seng Index through the Hong Kong Monetary Authority (HKMA). In October of that year, the Hong Kong government disclosed that the total cost of bailing out the market was about HK$118.1 billion (US$15.1 billion), and that the Hong Kong Monetary Authority accounted for 7.3% of the total share capital of the 33 constituent stocks. Some studies have shown that the government's direct buying behavior is effective, such as Su, Yip and Wong (2002), who found that the Hong Kong government's intervention finally contained the decline in the entire stock market and greatly reduced the volatility of Hong Kong stocks. In the follow-up market, the price increase of the 33 stocks purchased was sustainable, while the stocks not purchased by other governments rose even less and were not sustainable. Chan, Chan and Fong (2004) found that the 33 stocks purchased by the Hong Kong Monetary Authority were all super-capitalisation heavyweights, and they observed a high correlation between the Hang Seng 100 Index and the Hang Seng Index. After the government halted its purchase program at the end of August, the Hang Seng Index fell for several days until mid-September, when more investors returned to the market as financial markets stabilized further. Chan, Chan and Fong (2004) The Hong Kong government's entry into the market only boosted the market in the short term, but it severely squeezed the liquidity of 33 stocks, especially the liquidity of the 33 bailout stocks in 1999.

In addition, the American Distressed Asset Rescue Program (TARP) is the largest government funding program in U.S. history. In the U.S. subprime mortgage crisis, financial institutions faced huge losses due to their excessive concentration of real estate and related assets, overdue mortgage loans and impairment of derivatives held. Following the collapse of Lehman Brothers in September 2008 and the bailout of AIG by the U.S. government, U.S. financial markets were in turmoil. U.S. President George W. Bush signed the Emergency Economic Stabilization Act of 2008 into law on October 3, which introduced a $700 billion Troubled Asset Rescue Program (TARP). On October 14, the U.S. Treasury Department announced the Capital Purchase Program (CPP), approving financial institutions to apply to the Treasury Department for non-voting preferred stock injections, and at the same time, the U.S. Treasury Department obtained a 10-year option to purchase an equal share of common stock of 15% of preferred stock. On the same day, nine financial institutions, including Citigroup, Wells Fargo, JP Morgan, and others, received $125 billion in capital injections. According to statistics, the CPP project eventually injected a total of US$204.9 billion into 707 financial institutions, including 646 commercial banks and 350 listed banks.

In a study of the U.S. government's capital injection behavior, Bayazitova and Shivdasani (2012) found that the U.S. government prefers large banks and banks with high exposure to derivatives risk, which is consistent with the purpose of reducing systemic risk. Banks that lack a stable source of funding are also more vulnerable to bailouts, in line with the goal of reducing the risk of insolvency. In hindsight, CPP asset injections are costly for banks, and some banks refuse to participate or refuse to inject funds as a result. The government's intervention in executive pay after the capital injection is also a focus of concern for banks, and some banks have chosen to withdraw from the plan as a result. Veronesi and Zingales (2010) measured the cost-benefit of the asset injection program and found that the U.S. government's intervention cost taxpayers $21 billion to $44 billion, increasing bank valuations by $130 billion, and net income of $86 billion to $109 billion, with the main source of net income being reduced the risk of bank failure. The biggest winners in the bank's capital injection plan were Morgan Stanley, Wachovia, Merrill Lynch, Goldman Sachs, Citigroup's creditors, and the losers were JP Morgan's equity investors and US taxpayers.

(3) Temporary modification of the rules

In the midst of the stock market crash, there have been many incidents of temporary rule revisions led by governments. For example, in the 1987 stock market crash, the margin ratio of the stock index market was raised, the New York Stock Exchange restricted the index arbitrage strategy of spot and futures indexes, and the US Securities and Exchange Commission issued a short selling ban in September 2008, prohibiting the short selling of about 1,000 stocks. For example, the 1987 restriction on index arbitrage, which widened the spread between spot and futures and made it difficult for arbitrage investors to make choices (Brady Report, 1988), and the 2008 short-selling ban deeply damaged the liquidity of the banned stocks, and the impact of the short-selling ban on prices was actually not significant in a longer time window, suggesting that the ultimate effect of the ban was an artificially created price increase in the short term (Boehmer, Jones and). Zhang, 2013）。

The market background of the bailout

3.1 Market background of the bailout

Starting from June 12, 2015, when the China Securities Regulatory Commission (CSRC) cleared the over-the-counter allocation and prohibited securities firms from facilitating over-the-counter allocation, the mainland A-share market fell rapidly in the midst of violent shocks, plummeting by 32.12% in 17 trading days. In the panic of the market, the mainland government adopted a series of rescue measures (as shown in Figure 4.1), which are summarized in three aspects: (1) providing liquidity, (2) temporarily changing trading rules, and (3) entering the market by the national team.

Before the national team entered the market in early July, a large amount of liquidity had been injected into the A-share market. On June 27, the central bank cut interest rates by 0.25 percentage points, but the market was limited - on July 1, A-shares fell another 5.23%, and the China Securities Regulatory Commission issued two financial permits overnight to allow the extension, and the collateral default can not be liquidated, and further broaden the financing channels of brokerages and other policies, but it has not been recognized by the market, and the stock market continued to decline to -3.48% and -5.77% on July 2 and 3.

At the end of that week, the national team's entry into the market officially entered the state of preparation. On July 4, 21 brokerages including CITIC, Haitong, Galaxy and GF Securities issued a joint statement that they would invest 15% of their net assets in the second quarter of 15 and invest no less than 120 billion yuan in A-share blue-chip ETFs, and promised not to reduce their holdings. Through stock pledge, the securities company granted 260 billion yuan of credit to 21 securities companies for self-operated increase in securities holdings. On July 5, the China Securities Regulatory Commission announced that "in order to maintain the stability of the stock market, give full play to the role of China Securities Finance Co., Ltd. (Securities Finance Company), raise funds through multiple channels, expand business scale, and enhance the ability to maintain market stability." The People's Bank of China will assist in providing liquidity support to China Securities Finance Corporation Limited in various forms." On July 6, the securities companies announced that they had transferred their capital contributions to the designated special account of the securities company, and the securities company officially entered the stock purchase from this day, and a huge rescue action began. According to the data of the Oriental Wealth Network on the 6th, the capital inflow of the Dragon and Tiger List showed that the securities company contributed at least 5.8 billion yuan on the 6th, entering the top five of the 30 stocks on the buy list, among them, the Shanghai Composite Index rose 2.41% on the same day under the strong boost of the national team. Since then, the national team rescue actions including Securities Company, Huijin Company, Huijin Asset Management, and Sycamore Tree Investment Platform of the State Administration of Foreign Exchange have boosted the market significantly, and the Shanghai Composite Index has rebounded 17.58% from 3,507 points on July 8 to 4,124 points on July 23.

3.2 Entry of the national team into the market

This chapter divides the national teams into three categories: the securities and gold system, the Huijin system, and the SAFE system (as shown in Table 4.1). Among them, the securities department is composed of securities companies, five public funds, and ten asset management plans. In the bailout operation, the securities company took on a heavy responsibility. The company was established in October 2011 to provide liquidity for the financial business of securities firms, and its business scope mainly includes refinancing and refinancing securities services, with the aim of providing additional credit financing channels for securities firms. At the beginning of July, the securities company was given the role of a bailout in the face of danger, mainly due to the government's will, and a number of announcements related to it specified that it was "decided by the CSRC". Analyze the source of funds (liability side) channels for securities companies to enter the market, mainly including:

(1) Capital increase of the securities company's own capital. On July 3, the China Securities Regulatory Commission announced the third capital increase of the securities company, which was increased by the existing shareholders, and the registered capital increased from 24 billion to 100 billion.

(2) Issuance of short-term financing bonds to the interbank market. On July 9, the securities company issued a short-term financing bond of "15 Securities CP001" with a coupon rate of 4.5% and a maturity of three months to the interbank market, with an issuance scale of 80 billion yuan.

(3) Obtain interbank credit from the commercial banking system. As of July 13, commercial banks have granted a total of about 2 trillion yuan of credit to securities companies, and 17 commercial banks have about 1.3 trillion yuan of funds in place, of which China Merchants Bank has borne the brunt, lending 186 billion yuan to securities companies.

(4) Financing by issuing bank wealth management products. Among them, the latter two sources of funding are the main channels.

The five major public funds and the top ten asset management plans of the securities and finance system have also been established. On July 9, the China Securities Regulatory Commission (CSRC) decided to subscribe for active public funds funded by securities companies, namely Huaxia New Economy and Harvest New Opportunities, which were established on July 13, and E Fund, Ruihui, Southern Consumer Vitality and China Merchants Fengqing A, which were established on July 31, with each fund raising an amount of 40.01 billion. The top 10 securities asset management plans first appeared in the list of shareholders of Nanjing Hi-Tech on July 23. These ten asset management plans are all entrusted to the Agricultural Bank of China, and the number of shareholdings, increases and decreases are relatively consistent. The purpose of establishing a public fund and asset management plan related to securities and finance is mainly to allow securities companies to divide positions and indirectly hold shares of listed companies, so as to avoid the trouble caused by the high shareholding ratio of a single entity and reaching the holding line.

The second largest faction to bail out the market is the Huijin system, which mainly includes Central Huijin Company and Huijin Asset Management Company, which was established in November 2015. Founded in December 2003, Huijin is an institution entrusted by the government to make equity investments in key state-owned financial institutions. Since September 2008, Huijin has a special account for A-share trading (which can be directly traded on the exchange), and since September 2008, it has successively purchased shares of listed companies such as industry, agriculture, China, China Construction Bank, Everbright and Xinhua People's Insurance in the secondary market. After the stock market crash, Huijin announced on July 5 that it would buy ETFs in the secondary market, and on July 8 it promised not to reduce its holdings in listed companies. In order to achieve the purpose of long-term investment, value preservation and appreciation, on August 14, Huijin Company acquired some shares of listed companies from the self-certification gold company. In November 2015, Huijin Asset Management Co., Ltd. was established as a wholly-owned subsidiary of Huijin Company, and in December 2015, Huijin Company transferred the shares it received in August to Huijin Asset Management Co., Ltd. by way of agreement transfer.

In addition, the Sycamore Tree Investment Platform of the State Administration of Foreign Exchange, Fengshan Investment Company, and Kunteng Investment Company also participated in the bailout. Sycamore Tree Investment Platform was established in November 2014 and is a wholly-owned subsidiary of the Mainland Administration of Foreign Exchange. Of the funds raised in the first phase of the Silk Road Fund, US$6.5 billion in foreign exchange reserves were contributed through the Sycamore platform. Fengshan and Kunteng are wholly-owned subsidiaries of Sycamore Tree, established in August 2015, and its business scope includes project investment, asset management, and investment management. In the 2015 annual report, the three major entities of the State Administration of Foreign Exchange (SAFE) entered the list of the top 10 circulating shareholders of 18 listed companies for the first time. Due to its small number of holdings and adhering to the concept of long-term investment, the follow-up discussion in this chapter will focus on the two major bailout entities: the securities and the Huijin.

Empirical analysis

4.1 Analysis of national team positions

4.1.1 Breakdown of national team positions

This section provides statistics on the holdings of the national team in each quarter. The list of the top ten shareholders of listed companies, the number of shares held, and the shareholding ratio data are all from the Guotaian database (CSMAR), the daily trading data and quarterly financial data of the stocks are also from the Guotaian database, and the intraday high-frequency trading data of individual stocks are from the Resset database. It is worth noting that the list of outstanding shareholders included in the CSMAR database comes from the disclosure of the company's quarterly/annual report, and the exchange stipulates that listed companies have the obligation to disclose the top 10 shareholders and the top 10 circulating shareholders.

It is important to note that if the national team's holdings are not in the top 10 list of outstanding shareholders, it is not possible to estimate the national team's shareholdings, which partly leads to the partial underestimation of the overall national team holdings in this study. In addition, in the data processing, this study avoids as much as possible the impact of the undisclosed top 10 circulating shareholders, such as the stock 603003, in its 2015Q3 and 2016Q1 shareholder lists, the shareholding ratio of the securities company is 0.68%, and the shareholding ratio of the 10th circulating shareholder in 2015Q4 is 0.74%, and the shareholding of the securities company is not disclosed, and this study reasonably assumes that the shareholding ratio of the securities company in 2015Q4 is 0.68%.

Table 4.2 reports the holdings of national teams from the first quarter of 2015 to the third quarter of 2016. Panel A shows that in the third quarter of 2015, the national team (securities and gold plus Huijin) increased its holdings in 1,275 A-share companies, with a total market value of 2.34 trillion yuan, accounting for 6.93% of the circulating market value of A-shares. If calculated at the constant price at the end of the second quarter of 2015, the market value of the stock held is 3.15 trillion yuan. The national team's holdings began to decrease sequentially from the fourth quarter of 2015, and as of the third quarter of 2016, the national team held a total of 1,009 listed companies, with a market value of 2.1 trillion yuan. Panel B shows the position of the securities system. As the main force to rescue the market, the securities and finance system increased its holdings of 927 stocks in the third quarter of 2015, with a market value of 0.75 trillion yuan at the end of the quarter. The number of stocks held by the securities system decreased rapidly to 642 in the fourth quarter of 2015. Huijin's increase in holdings in the secondary market, coupled with the transfer of securities companies, led to a sharp increase in Huijin's holdings to 1,008 in the third quarter of 2015 (Panel C). At the constant price at the end of the second quarter of 2015, Huijin increased its holdings in the A-share market value by 0.34 trillion yuan in the third quarter. Compared with the securities and finance system, the Huijin system is more stable in terms of the number of shares held and the market value.

4.1.2 Characteristics of national team shareholdings

This section provides descriptive statistics on the characteristics and industry distribution of stocks held by the national team at the end of the third quarter of 2015, and the sample range is the individual stocks that were actively traded in the third quarter of 2015. In order to avoid the impact of extreme values, we have implemented a 1% quantile and a 99% quantile of the market capitalization-to-book ratio, debt-to-asset ratio (total liabilities/total assets), and return on total assets. Table 4.3 shows that the average logarithmic value of the market value of the circulating market is 22.38, 22.76 for the national team and 23.03 for the securities system, indicating that the market value of the stocks held by the national team, especially the securities and finance system, is large. From the perspective of the average book value ratio, the book market value ratio of the stocks held by the securities and gold system is 3.18, the average of the national team is 3.66, and the average of the Huijin system is 3.77, indicating that the market value of the stocks held by the national team is relatively low, and the Huijin system holds more stocks with high book value ratio. From the perspective of asset-liability ratio and return on total assets, the average asset-liability ratio of national team holdings is 45.54%, higher than the market average of 43.74%. The average total debt-to-asset ratio of the national team is 2.93%, which is higher than the market average of 2.66%.

Table 4.4 refers to the CITIC Industry Classification, and this chapter provides statistics on the industry distribution of funds that increased their holdings in the third quarter of 2015 (compared to the second quarter). In the distribution of the national team's increased holdings, the proportion of holdings in the banking industry was the highest, reaching 14.73%, followed by the non-bank financial industry (10.37%) and the construction industry (6.47%). Column 2 and Column 3 are consistent with the distribution of securities and Huijin industries, of which the banking funds increased by 15.03%.

4.2 Decisions on national team shareholdings

This chapter uses the following two models to quantify the impact of each factor on the national team's holdings in the third quarter of 2015 with reference to Kotter and Lel (2011) and Bayazitova and Shivdasani (2012) with reference to Kotter and Lel (2011) and Bayazitova and Shivdasani (2012):

Among them, the explanatory variable Buy(i) in equation (1) is a dummy variable, if the national team/securities system/huijin system increases its holdings of shares i in the third quarter of 2015, Buy(i) is equal to 1, otherwise Buy(i) is equal to 0. The explanatory variable Buy Amount(i) in Eq. (2) calculates the amount of funds that the national team has increased its holdings of stock i in the third quarter of 2015. SOE(i) is a dummy variable, if the actual controller of stock i at the end of the second quarter is a state-owned enterprise/SASAC/NDRC/Ministry of Finance, then SOE(i) is equal to 1;Drop Percent(i) calculates the decline of stock i from the beginning of the stock market crash on June 15, 2015 to the eve of the bailout on July 8, 2015;Size(i) is the logarithm of the circulating market value of stock i at the end of the second quarter;M/B(i) is the book ratio of the market value of stock i at the end of the second quarter;Dividend(i) is the dividend yield of stock i in the 12 months before the end of the second quarter, CR1(i) is the shareholding concentration of stock i in the second quarter, which is equal to the shareholding ratio of the largest outstanding shareholder, ROA(i) is the total return on assets of stock i in the second quarter, Debt/Asset(i) is the asset-liability ratio of stock i, and Market Sensitivity (i) is the market sensitivity of stock i, which is equivalent to returning the daily return of stock in the previous 12 months to the market return coefficient.

The regression results are shown in Table 4.5, and columns (1)-(3) show the regression results of the national team, the securities system, and the Huijin system as the main body of the bailout. Panel A shows the results of Probit's regression: first, when only the securities and financial systems are the main body of the bailout, the regression coefficient of SOE(i) is significantly positive, indicating that only the securities and financial systems are more inclined to hold the shares of state-controlled listed companies. Secondly, the greater the decline in the stock market crash, the more likely it is to be rescued by the national team. If the stock falls -100% in the crash, the probability of a rescue for the national team rises by 59.1%, the probability of a bailout of the securities system increases by 27.0%, and the probability of a bailout of the Huijin system increases by 77.3%. Third, the national team is more inclined to buy high-capitalization stocks. Fourth, the estimation coefficients of Dividend(i) and CR1(i) are both significantly positive, indicating that the national team, the securities system, and the Huijin system all prefer stocks with high dividend yields and higher equity concentration. Finally, the estimation coefficient of Market Sensitivity(i) is significantly positive, and the stocks selected by the national team are sensitive to changes in market returns, among which the stocks owned by securities are the most sensitive to changes in market returns. On the other hand, this also shows that when the national team chooses a stock bailout, it expects the market to rebound with a greater likelihood. Panel B shows the OLS regression results when the dependent variable is the amount of funds increased by individual stocks, which is basically consistent with the results of Panel A, in terms of capital allocation, the greater the decline in the national team/securities system/Huijin system, the greater the decline in the stock market crash, the greater the market capitalization, the higher the dividend yield, the higher the equity concentration, and the higher the market price sensitivity, the greater the amount of additional funds.

4.3 The market impact of the national team's entry into the market

4.3.1 Cumulative excess return of the bailout portfolio

According to whether the national team bailed out and who bailed out, this section constructs four stock portfolios, namely: the non-bailout group, the national team group (securities and gold plus Huijin), the securities and gold group, and the Huijin group, buy individual stocks in an average-weighted way, and estimate the daily excess return of each portfolio. First, this chapter selects July 1, 2014 - June 30, 2015 as the parameter estimation window, and first estimates the coefficients a, b, c, and d through equation (3):

R(m,t) is the market return on day t, SMB(t) is the market capitalization risk premium on day t, and HML(t) is the book capitalization risk premium on day t. After the rescue starts, the daily excess return AR(i,t) of individual stocks is the difference between the actual return of individual stocks on that day R(i, t) minus the expected return E(R(i, t)) calculated according to the estimated parameters: AR(i,t) = R(i, t)E(R(i, t)).

Figure 4.2 illustrates the cumulative excess returns of the four equity portfolios from July 9 to the end of the third quarter. First of all, since the start of the national team's bailout on July 9, various stock portfolios have begun to rise significantly in the short term. Within 3 trading days, the excess return of the securities and gold investment portfolio reached 7.25%, which was the best performance. Huijin followed second, with an excess return of 5.4% in the Huijin portfolio within three trading days. The worst-performing stock portfolio was the one that was not bailed out by the national team, at just 1.98%. From August 3 to September 30, the excess return of each group continued to decline, and as of the end of the third quarter, the cumulative excess return of the non-rescue group was -22.44%. The cumulative excess rate of return of the securities and gold portfolio was 3.67%, 26.11% higher than that of the non-bailout group, the cumulative excess rate of return of the Huijin portfolio was -4.45%, 17.99% higher than that of the non-bailout group, and the cumulative return of the national team portfolio was -3.93%, 18.50% higher than that of the non-bailout group.

Table 4.6 further examines the T-test of cumulative excess returns over four different time windows: [0, 1], [0, 5], [0, 10], and [0, 30]. In order to avoid the impact of frequent trading suspensions of individual stocks during the stock market crash, Table 4.6 only includes a sample of stocks that have been traded for more than 10 days in the 30 trading days after the start of the bailout. [0, 1] Within the time window, the abnormal return of the national team portfolio was significantly higher than that of the control group (t=6.70), and the abnormal return of the securities and financial portfolio was significantly higher than that of the control group (t=9.11). [0, 5] During the window period, the cumulative excess return of the national team portfolio reached 1.64%, which was not obvious compared with the control group's 1.80%, and the cumulative excess return of the securities portfolio was 2.34%, and there was no significant difference between the cumulative excess return of the national team, the securities and the Huijin portfolio and the control group. [0, 10] During the window period, only the securities portfolio achieved a cumulative excess return of 2.45%, which was higher than the control portfolio at a 10% confidence level of 1.84%. During the [0, 30] window period, the cumulative abnormal return of the securities and gold portfolios was as high as 5.06%, that of the national team portfolio was -0.83%, and that of the Huijin portfolio was -1.70%, which was 15.59% higher than that of the control group, and was highly significant at the confidence level of 1%.

4.3.2 The reason for the high return of the securities and capital holding portfolio

From Figure 4.2 and Table 4.6, it can be found that the cumulative excess return of the portfolio of the securities and financial system will be significantly higher than that of other rescue portfolios. Five securities are public funds;2. 10 Securities Asset Management Plan;3. Securities companies. Figure 4.3 further splits the securities and capital bailouts, and the calculation method for the daily excess returns of each portfolio is the same as (3).

There are three main findings in Figure 4.3: (1) The high cumulative abnormal return of the securities and financial institutions is mainly due to the performance of the securities companies' shareholding portfolios, which were as high as 6.48% from July 9 to the end of the third quarter. Table 4.7 further analyzes the cumulative excess returns of the three entities in the [0, 1], [0, 5], [0, 10] and [0, 30] window periods, and it can also be found that the cumulative excess returns of the securities companies are significantly higher than those of the control portfolio in any time window. In Figure 4.3, the performance of the top five securities mutual funds is the second (cumulative abnormal return rate is 3.25%), and the top ten securities asset management plans (2.27%) are again. In the early stage of the bailout, the performance of the securities company's shareholding portfolio was outstanding, with a cumulative excess return of 8.18% in the [0,3] time window, much higher than that of other portfolios. (2) There was basically no significant difference in the performance of the top 10 asset management plans and securities companies from July 20 to September 30. It can be seen that the purpose of the establishment of the top ten asset management plans is to help securities companies divide their positions, and one of the possible reasons is to prevent the impact on the market that the Securities Law stipulates that information disclosure must be carried out for holding more than 5% of the shares. (3) There is a significant difference between the performance of the portfolio purchased by the securities company itself and the performance of the entrusted public fund. The portfolio performance of the five major public funds has continued to decline since August 4, and the cumulative excess return fell by 6.6% by the end of the third quarter, while the performance of securities companies and the top ten asset management plans was stable, with only a change of -2.8%. There may be two reasons for the difference, firstly, there is a significant difference in the liability structure of securities companies with public funds and Huijin, resulting in different investment perspectives. Secondly, the purchase of securities companies has brought great turmoil to the market, resulting in frequent chasing of stocks in which securities are invested.

Table 4.8 further divides the shareholding portfolios of each entity into five portfolios from 1 (the lowest capital increase) to 5 (the highest capital increase) according to the capital increase of securities companies, securities public funds and securities asset management plans in the third quarter of 2015, and analyzes the cumulative excess return of the position portfolios grouped by capital increase during the window period of [0, 1], [0, 5], [0, 10] and [0, 30]. In the time windows of [0, 5], [0, 10] and [0, 30], the portfolio of securities companies shows the characteristics of the larger the cumulative excess return. Among them, the cumulative excess returns of the portfolio with the lowest capital increase were 0.73%, 0.56% and 1.86%, and the cumulative excess returns of the portfolio with the highest capital increase were 4.51%, 6.78% and 8.69 respectively, and the difference between the high and low portfolios of the capital increase was highly significant at the level of 1%. The performance of the capital increase grouping of the top 10 securities asset management is very similar to that of the securities company (Panel B), which also shows the characteristics of the position portfolio with more capital increase, the greater the cumulative excess return, and the portfolio with the least capital increase even has a negative excess return.

However, if the five major public funds are grouped according to the amount of capital increase, the position portfolio shows different characteristics (Panel C). During the [0, 10] and [0, 30] window periods, the capital increase of the public fund is not correlated with the cumulative excess return of the portfolio. Taking the [0, 30] window period as an example, the cumulative excess returns of the securities public fund according to the lowest to the highest portfolio of capital increase are 6.38%, 7.41%, -0.30%, 0.31% and 8.71% respectively, showing no monotonic changes.

The above results show that the higher excess returns obtained by securities companies and securities asset management plans are partly due to the capital drive. The larger the capital investment of these two positions, the greater the excess return. It is not excluded that the heavy stocks of securities companies may be popular in the market. For securities public funds, the amount of capital increase has nothing to do with performance.

4.4 National Team Reduction Actions

Judging from the liability structure of securities companies mentioned in the market background in Section 3, there is repayment pressure on the interbank short-term securities and wealth management products issued by the securities companies, which leads to doubts in the market about when the national team represented by the securities companies will withdraw. In the subsequent stock market changes, the responsible persons of the securities and finance companies and the China Securities Regulatory Commission even stated on many occasions that the securities companies had not sold any shares of listed companies, and that the securities companies would continue to play the role of stabilizing the market and would not withdraw for several years. What is the actual action of the national team to reduce its holdings, and what are the influencing factors of the national team's decision to reduce its holdings?

Figure 4.4 provides statistics on the reduction of holdings by national teams. Panel A counts the number of individual stocks held in each quarter. From the third quarter of 2015 to the third quarter of 2016, the number of stocks held by the national team was 1275, 1161, 1115, 1068 and 1009 respectively, of which the number of shares held by the securities and finance system changed significantly in the fourth quarter of 2015, from 927 to 642, and then 586, 546 and 511 in the subsequent quarters. Panel B counts the reduction of holdings in each quarter (including the overall exit and the reduction of shareholdings), and it can be seen that the fourth quarter of 2015 is the peak period for reductions. In the fourth quarter of 2015, the securities and finance system reduced its holdings in 666 stocks, of which the securities and finance system withdrew from 285 stocks as a whole and reduced the shareholding ratio of 381 stocks. In the following quarters, the securities system will reduce its holdings of about 200 stocks every quarter. Compared with the securities and gold system, Huijin's holdings are relatively stable, and 99, 104, and 112 stocks have been reduced in each quarter since 2016.

What are the factors influencing the decision of each bailout entity to reduce their holdings? This chapter uses the following model to quantify the impact of each factor on the decision of the national team to reduce its holdings:

Among them, the explanatory variable Reduce(i) is a dumb variable, if the national team/securities system/Huijin system reduces its stock i in a certain quarter, Reduce(i) is equal to 1, otherwise Reduce(i) is equal to 0. Among the explanatory variables, Price Change(i) calculates the cumulative price change range of stock i from the eve of the bailout on July 8 to the end of each quarter, Illiquidity(i) is the daily average of Amihud Illiquidity of stock i in the same quarter, and the formula for the Amihud illiquidity indicator (Amihud, 2002) is abs(Return) / Volume, which is equal to the absolute value of the daily return divided by the trading volume, can quantify the degree to which the price change in a single day reacts to the daily volume, the higher the illiquidity indicator, the worse the liquidity. Volatility(i) is the standard deviation of the return of stock i at the end of the same quarter, which measures the volatility of stock i in the same quarter, M/B(i) is the book ratio of market value of stock i at the end of the same quarter, Dividend(i) is the dividend yield of stock i in the same quarter, CR1(i) is the concentration of stock i, which is equal to the proportion of shares held by the largest outstanding shareholder, ROA(i) is the total return on assets of stock i in the same quarter, and Debt/Asset(i) It is the asset-liability ratio of stock i in the same quarter.

The regression results are shown in Table 4.9, Panel A-C are the regression results of the national team, the securities system, and the Huijin system, and the regression results of the decision to reduce holdings in columns (1)-(4) are the decisions of the fourth quarter of 2015 to the third quarter of 2016, and the sample observations of each quarter are all stocks held by the bailout entities in the previous quarter. The regression results show that there are great differences in the factors affecting the decision to reduce holdings in different rescue entities and different quarters. In the fourth quarter of 2015, the decision to reduce the holdings of the securities and gold systems and the Huijin series was not significantly related to the increase in stock prices. The securities and gold system is more inclined to reduce the holdings of stocks with higher volatility and larger market capitalization, while the reduction of Huijin is not significantly related to volatility and market value, and the Huijin system prefers to reduce the holdings of stocks with lower yields. From the first quarter to the third quarter of 2016, the securities and gold systems were more inclined to reduce their holdings of stocks with a greater increase in price, and this law also held true for the decision to reduce the holdings of Huijin in the second and third quarters of 2016. The securities and finance system prefers to reduce the holdings of volatile stocks in each quarter, but other factors have no lasting impact on the decision to reduce the holdings of the securities and finance system in each quarter. For example, in the first quarter of 2016, the securities and finance system preferred to reduce the holdings of high-capitalization book-to-book stocks, but this characteristic did not hold true in the following two quarters, and for example, the securities and financial systems preferred to reduce the holdings of stocks with better liquidity in the first and second quarters of 2016, but this characteristic did not hold true in the third quarter of 2016. Volatility in each quarter did not have a significant impact on Huijin's decision to reduce its holdings. In the first quarter of 2016, none of the factors could significantly affect the decision to reduce the holdings of Huijin, indicating that the decision to reduce the holdings of Huijin in this quarter was relatively arbitrary and had no obvious characteristics. Generally speaking, the factors influencing the decision of the two bailout entities to reduce their holdings are different, and the performance of each quarter is inconsistent.

4.5 What exactly did the national team save?

4.5.1 Impact on the liquidity and volatility of listed companies

Table 4.10 compares the market behavior of the national team before and after the bailout, including liquidity and volatility. Liquidity is measured by the Quoted Spread, and the Realized Bipower Volatility (RBV) proposed by Barndorff-Nielsen and Shephard (2004) is used to estimate the intraday volatility of stocks.

where R (i,k) and R (i,k-1) are the logarithmic returns of adjacent time intervals, respectively, and the time interval is taken as 5 minutes. The average realized double-power volatility is 0.1%. In order to distinguish the real differences before and after the bailout portfolio, this section constructs four stock portfolios according to the different bailout subjects, namely: the national team group (securities and gold plus Huijin), the securities group, the Huijin group and the non-rescue group. The Before time window looks at the seven trading days from June 30 to July 8 before the bailout. In these seven trading days, the stock price has fallen continuously, and the market is extremely panicked, and it is the continuous decline of these trading days that has made the regulator make the final decision to save the market. The After time window looks at the seven trading days from July 9 to July 17 after the bailout. It should be noted that the samples of individual stocks compared before and after the bailout in this chapter are all stocks that were actively traded before and after the bailout.

In the results of Table 4.10, the absolute quotation spread liquidity indicators of the national team, securities and gold series and Huijin series before the bailout were 4.85%, 3.56% and 8.25% respectively, and the liquidity of Huijin positions was significantly worse than that of securities and gold positions. Compared to the control group (the portfolio of stocks that were not bailed out), the liquidity of the securities and gold portfolio was better. After the bailout, the absolute quotation spread indicators of the national team, the securities system, and the Huijin system were 3.30%, 2.38%, and 5.72% respectively, which was significantly improved compared with the liquidity of the three portfolios before the bailout, and the difference before and after was highly significant at the confidence level of 1%. Among them, the degree of liquidity improvement of the securities and gold positions was lower than that of the control portfolio, and the liquidity improvement of the Huijin positions was significantly better than that of the control portfolio, and the difference between the groups of the Huijin positions was -0.51%, which was highly significant at the 1% confidence level.

From the before and after comparison of intraday volatility, the average intraday volatility of the national team, securities and foreign exchange is 0.49, 0.48 and 0.52. After the bailout, the average intraday volatility of each portfolio was 0.28, 0.27 and 0.30, which was 0.21, 0.21 and 0.22 lower than before the bailout, and the difference was highly significant at the 1% confidence level. Compared with the control group, the difference between the three rescue groups was also highly significant, and the volatility of the combinations was greatly reduced.

4.5.2 Impact on the investment and financing decisions of listed companies

The results in Table 4.10 illustrate that the national team's bailout has injected liquidity and reduced volatility into the market in the short term. Will it have an impact on the investment and financing decisions of listed companies in the long run? This chapter refers to the model of Grullon, Michenaud and Weston (2015) and uses the regression results of the following formula to answer this question:

Among them, the explanatory variable Y(i,t) is R&D(i,t) or Delta Asset(i,t) in the regression of Panel A's investment behavior, the former is the R&D expenditure of stock i in the quarter t divided by the total assets at the beginning of the period, and Delta Asset(i,t) is the change in the total assets of stock i in the quarter t compared with the previous quarter divided by the total assets at the beginning of the period. In the regression of Panel B's financing behavior, the explanatory variable is Debt Issue(i,t), where the former is equal to the increase in long-term liabilities of stock i in the quarter t divided by the opening total assets, and the latter is equal to the increase in equity divided by the opening total assets, or Equity Issue(i,t). Among the explanatory variables, Hold(i,t) is the number of quarters in which the bailout entity holds stock i as of the end of the quarter t period, which measures the length of time the national team has been in charge. Cash Flow(i,t) is equal to the net profit of stock i in quarter t divided by opening total assets, Total Asset(i,t-1) is the logarithm of stock i's total assets in the previous quarter t-1, Profitability(i,t-1) is the ratio of stock i's operating profit in quarter t-1 divided by total assets at the beginning of the period, and Leverge(i,t-1) is the ratio of stock i's total liabilities in quarter t-1 divided by total assets. The sample interval of Eq. (6) is the individual stocks from the fourth quarter of 2015 to the third quarter of 2016, and the fixed effect of individual stocks and the fixed effect of year-quarter are controlled in the regression.

The regression results are shown in Table 4.11. In Panel A's investment behavior, the estimation coefficient of the Hold variable is not significant, indicating that the holding time of the bailout entity represented by Hold has no significant impact on the company's R&D expenditure investment and total asset changes, whether it is for the national team, the securities system or the Huijin system. The estimation coefficients of the Hold variable are not significant in the corporate fundraising behavior shown in Panel B, indicating that the positions of the national team, securities and finance systems have no significant impact on the fundraising behavior of listed companies borrowing debts and issuing additional shares. Based on the results of Table 4.10 and Table 4.11, it can be seen that the entry of the national team can only improve the liquidity of individual stocks in the short term and greatly reduce volatility, but has no significant impact on the fundamentals and investment and financing behavior of listed companies.

Summary of this chapter

In the 2015 stock market crash, the national team was urgently formed in a panic in the market, leading trillions of funds into the secondary market to buy. The research in this chapter finds that the distribution of individual stocks and funds in the national team rescue has obvious behavioral preference characteristics, and the asset increase behavior in the national team stock market crash does significantly improve market liquidity and reduce market volatility. However, what the huge bailout army did not expect was that its entry itself had a significant impact on the price of the purchased shares in the short term. In particular, there is a significant difference between the portfolio performance of securities companies buying by themselves and those of securities and public funds, and in contrast, the buying behavior of securities companies has generated higher excess returns, partly because it is driven by funds.

And because the bailout army lacked thinking about whether to reduce its holdings and how to reduce its holdings at the beginning of the bailout, after the trillions of salvation troops settled in, the slightest wind and grass affected the market and became an instability in the market. Although the China Securities Regulatory Commission (CSRC) has stated that "securities companies buy stocks to maintain the stability of the securities market, and securities companies will not withdraw in the next few years", practice shows that the national team has a large number of shareholding reductions in each quarter, and the performance of various rescue entities in each quarter is different.

In the analysis of the bailout behavior and the comparison of the research on the global financial crisis, this chapter argues that the government's intervention in the financial crisis should first fully reduce the information asymmetry, judge from the perspective of whether it constitutes a systemic impact on the whole market, and define whether it constitutes a financial crisis. Secondly, in the selection of rescue tools, we should fully weigh the difference in the effect and feasibility of the two rescue tools of liquidity injection and re-injection, clarify our objective function, consider that the debt structure and transaction organization of the rescue entity will have an impact on market performance, and clearly understand that the objective function of the bailout, the credibility and the behavior of whether to disclose will have an important impact on the market. Thirdly, a complete bailout operation includes three steps: entry, holding, and exit, and the government intervention should deal with the problems that may be brought about by each link and make a complete consideration.

The bailout logic of the national team

The bailout logic of the national team

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