The Stock Market Bubble Study

The bubble economy is the important source of the economic crisis. Once the bubble runs to burst, economic crisis may follow. Stock market bubbles are the important factor to induct the bubble economy and the continuously inflating stock market bubbles are an omen to the bubble economy. So systematically researching into the stock market bubbles theory has great significance and practical values to the healthy development of the stock market and the economy.The full text is divided into eight chapters. Each contents arrangement is as follows:In Chapter 1,We briefly look back the important stock market bubble affairs in history. Then define the stock market bubbles .At last, we analysis the relationship between speculative activities and stock market bubbles. We make a conclusion that since the speculation in stock market is not intrinsically stabilizing, speculative bubbles may persist for extended periods of time.In Chapter 2,under the assumption of rational expectations, we develop the model of stock price and by solving the model in different assumptions; we get the solutions of different kinds of rational bubbles. Then we discuss the conditions under which bubbles may come into existence under partial equilibrium.In Chapter 3,under general equilibrium, we discuss the conditions of existence of rational bubbles and the effect of bubbles to economic dynamic efficiency. We show that in an overlapping generation economy, where not only the return on investment in a bubble but also the return on investment in real capital is uncertain, the rational bubbles will be especially sustainable if confidence in the further survival of the bubbles is high and if agents become pessimistic about the future profitability of investment in real capital. Under these conditions, bubbles also move or less in line with the real economy and may not become excessively large.In this chapter, a possible beneficial aspect of bubbles is elaborated. With a diamond overlapping generations model, it can easily be shown that bubbles possess the potential to increase dynamic efficiency as long as the economy is in a dynamically inefficient state. In Chapter 4,we develop a noise trader model to provide a behavioral explanation of growth of stock market bubbles. We make a dynamic extension of the original noise trader model developed by De Long etc. (1990a) under unchanging fundamentals and changing fundamentals respectively.In our multi-period model with changing fundamentals, noise traders' behavior is captured by two components One permanent component uncorrelated with fundamental changes and one temporary component correlated with fundamental changes. The first component follows a random walk and captures the permanent, slowly changing fundamentally unwarranted optimism of noise trader about the future development of dividends independent of the recent development of fundamentals. The temporary component is noise traders' overreaction to an average of recent dividend shocks, which results in waves of optimism or pessimism that create high price volatility. The first component leads to sustainable, slowly growing bubbles while the second component causes fast growing but frequently crashing bubbles and also results in mean reversion. But if the permanent component dominates, and noise traders' optimism is steady, prices may not show any mean reverting behavior and the bubbles are sustainable.In Chapter 5,on the basis of the revised mimetic contagion model, we research in detail the relationship between herd behavior and speculative bubbles. We conclude that even if there are no interference from outside the market, it will fluctuate periodically as long as there is herd behavior whether the fundamental of the stock market is fixed or changes stochastically and the stronger the herd behavior, the more violently the price will fluctuate. By combining herd behavior and market manipulation or game behavior, we establish a dynamic game model of incomplete information between market rigger and market follower and analyze...