Research Of Stock Bubble And Positive Feedback Investment Model

Look back the research work of stock market bubble, which has been the focus of stock market research in recent years, researchers tried to explain it in two ways: rational bubble and irrational bubble. Previous one is based on rational investor behavior and anticipation, but the second one is closer to reality by approaching the bubble through the angle of irrational psychology, emotion or behavior, and removing strict hypothesis of previous one.Behavior Finance analyzed stock market bubble through the angle of irrationality, rich accomplishments were achieved and a series of models were developed in analyzing of mechanism of stock market development. This paper mends positive feedback investment model (DSSW) developed by Delong, Shleifer, Summers, Waldmann in 1990 in order to further the research of bubble, and, real cases are analyzed in this paper in order to prove the credibility of theoretical research. Main contains of this paper goes as following:First, based on reality, DSSW model is mended this way: a faked signal is created by arbitrager and the model is extended from 4 periods into 5. Through the mend, we found that arbitragers' ability is limited in keeping the stock price in foundational level and do far more than that of claimed in original model: "jump onto the bandwagon", in some cases, they actively create faked signals in order to mislead passive investors, and therefore, mislead positive feedback investors, trigger the boom of stock market bubble, so that they could make extra returns. In other words, not only simply jump onto the bandwagon, sometimes they create the bandwagon. Secondly, through analyzing the most influential stock market bubbles in domestic and overseas market, we found that the hypothesis of this model is reasonable and close to reality, and, the findings of theoretical research could explain pheromones in real cases. Credibility of the model is proved.