This study mainly explores the declaration effect of Capital Reduction on stock price. The samples will be those listed companies which have declared the activity of Capital Reduction, and the sample period is from March 1, 2005 to August 31, 2007. We use multiple factors model (market return, stock volume variance, the net buy-and-sell ratio of foreign investment) with ADF, Ljung-Box Q and Ljung-Box Q2 to build our model, and then apply the method of event study to explain the declaration effect of Capital Reduction. As a result, this study exhibits Capital Reduction can not offer abnormal returns during the period of three days before the declaration and three days after.