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.