Research On Stock Bubble In China

Stock bubble refers to the economic phenomenon that the market price of a stock gets higher than its fundamental value after continual rises of prices. It is generally thought that stock bubble can be both rational and irrational. The former is a necessity for maintaining the mobility of market, while the latter is the abnormal inflation of price resulted from over-speculation and overheat market. The level and nature of stock bubble have great impact on the stock market and even the healthy development of the overall national economy. Therefore, it is necessary to do some research on the issue of stock bubble of the Chinese stock market and find suitable countermeasure to control the level of sock bubble and to avoid irrational bubble.This thesis distinguishes the concepts of rational and irrational bubble in terms of their essential characters, and explains systematically the generative mechanism of the two kinds of bubble by using rational expectation theory and financial noise theory. By means of auto-regressive method and unit root method, the thesis examines the level and nature of bubbles in Chinese stock market on the basis of sample data of Shanghai Security Composite Index from Dec. 19th, 1990 to Dec. 31st, 2003 and of Shenzhen Security Composite Index from Apr. 3rd, 1991 to Dec. 31st, 2003. The result shows that there has been a long existence of bubble in Chinese stock market and that though the level of bubble declined in recent years, it remains at a high level. It also shows that the level of bubble rises with the rises of stock price index; therefore, the rise of stock market in China tends to be driven by bubbles. While stock bubbles in China in general belong to rational bubble, irrational bubbles occur sometimes in limited scale, most conspicuously when the stock market experiences continuous rises in large scale.High bubble level and frequent appearing of irrational bubble causes serious harm to the stock market of our country, which must be efficiently regulated. This essay puts forward some methods such as building supervision system, improving market mechanics, optimizing the administration of the listed companies, fighting against stock companies' manipulating, fostering institutional investors and accelerating the instruction on rational investment and so on, which are employed to deal with the economic bubble hopefully the arguments in this essay will bring some enlightenment to the concerning people in this field.