An Empirical Test Of Rational Bubbles In Chinese Stock Market

Asset bubble has been the theory frontier of the economists, which is also a focus of daily attention. Assets refer to asset price bubble that can not be explained by fundamental factors such as cash flow and discount rate, etc. The asset bubbles have great impact on the real economic. It is generally thought that the bubble research may divide into the rational bubbles and irrational bubbles. The former has the very systematic and scientific rationale, and can explain the formation mechanism of asset bubble well. So the rational bubbles occupy the dominant position in the bubble research.Based on the common theoretical model of rational bubbles, this paper employs duration dependence to investigate the existence of rational bubbles in China stock market. Then use the anecdotal evidence to validate its result. Encouraging empirical results are obtained and confirm the existence of rational bubbles. The result shows that the characters of China stock market conform to the deduction of rational bubble very much. And the origin of rational bubbles in China stock market has the special institutional, which is determined by the particular development of China stock market. This paper also tests of rational bubbles in several international stock markets including S&P 500 index. Through compare analysis, the result shows that the characters of rational bubble in China stock market conform to the deduction of rational bubbles best and confirm the existence of rational bubbles further. Otherwise, the high stock increasing expectation and the absence of arbitrage mechanism is the direct cause of the existence of rational bubbles.The phenomenon of rational bubbles causes serious harm to the China stock market, which must be efficiently regulated. So to eliminate the phenomenon of rational bubbles and make our stock market grow healthy and steady, the perfect institution and diversity financial markets is to build.