Abstract: The fraud behaviors ofdishonestcompanieswere studiedwith a rational expectationsmodel to analyze the dynamic relations between the possibility of frauds to happen and the efficiencies of the regulatory authorities. It is found that frauds are a common phenomenon independentof the developing degree of securitiesmarkets, and the expectation by the dishonest companies ofbeing found is one of the key factors affecting the happening of frauds. The data from Chinese securitiesmarketwere taken to verify the arguments, and the result is the same as the theoretic analysis. Frauds in Chinese securities markethappenedmostly in 1996, accounting for40. 5% of the tota.l Investigations started in 2000, 4 years later than the happening peak of the frauds, suggesting that the investigations were too late, which is themain cause for the high rate of frauds to happenwithin a period.