A simple model for government intervention in China’s stock market

Zhong-Qiang Zhou, Ping Huang and Chee-Wooi Hooy

Finance Research Letters, 2025, vol. 83, issue C

Abstract: This paper develops a simplified heterogeneous agent model to analyze the Chinese government’s stock market intervention strategy, emphasizing governmental trading behavior. We characterize the government as an exogenous agent interacting with fundamentalists and chartists, enabling us to examine intervention effects on market sentiment and price dynamics. Utilizing daily CSI 300 index data from 2015 to 2022, the model captures dynamic shifts in investor composition and quantifies the government’s role in curbing excess volatility. Our results indicate that government intervention, implemented via a simple linear feedback rule, effectively reduces significant price deviations and aligns market valuations more closely with fundamentals. This study contributes to the literature by proposing an intuitive framework that estimates critical parameters of government intervention, thus providing novel insights into its implications for financial market stability.

Keywords: Government intervention; HAM; Market sentiment; Excess volatility (search for similar items in EconPapers)
JEL-codes: G10 G12 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:83:y:2025:i:c:s154461232500902x

DOI: 10.1016/j.frl.2025.107643

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