Hongtao Ma from the Monash Business School in Australia has produced timely analysis on the subject ‘does government intervention in stock markets work?’. Timely because it’s believed China Inc. was intervening in support of their domestic stock markets recently.
It’s said if you torture statistics long enough they’ll say anything so it’s to Mr. Ma’s credit that after the most comprehensive review of the available date he’s circumspect in his conclusion.
In brief, yes, there’s a short term effect after the Chinese government steps in. Prices do seem to go up a bit in the period following intervention (c. 2.3% in the following 6-days). Moreover there’s nearly always a notable uptick in volume which is handy for the windy who want out.
However, there’s little noticeable long-term effect but as the work points out you’re trying to isolate imprecise actions whose scope you can’t get a handle on. In addition, there isn’t really enough data to make bold calls about cause and effect.
At no point in the work though is damaging mischief uncovered so, to paraphrase, it seems government intervention does a bit of short term good, no real harm and doesn’t really matter longer term.
It’s to Mr. Ma’s further credit he leaves the the purist argument about long term reputational dis-benefits and aggregate valuation implications also unaddressed. That, IMHO, is more a philosophical rather than an analytical issue.
You can review the paper in full via the following link The Government put or an Exit Opportunity?.
Happy Sunday.