Study On Reasonable Scope Of The Stock Market Bubble In China

Stock market bubble is an economic phenomenon that after sustained appreciation in stock, the market price of stock is higher than it real value. Stock market bubble helps to spur the economic growth and raise economic efficiency when it is mild, but paralyze economic development when it expands too quickly. So we must find out a reasonable scope of bubbles in which stock market bubble has some positive effects without damaging economy.The fist chapter enunciates the writing background; aims and meaning the paper research the question bout the stock market bubbles. The second chapter introduces the fundamental concepts and theories. The third chapter mainly finds out the conditions under which bubbles can expand persistently without breaking by analyzing the formation mechanism of the stock bubbles. According the model of formation mechanism of rational bubbles, under the assumption of rational expectations, the rational bubbles'expanding speed and the average growth speed of the whole economic system are the same. But irrational behavior of noise traders could raise bubbles'expanding speed, and rational traders'"ride bubbles"behavior make the bubbles continuously and excessively expand until broken. So the market bubbles must expand slower than the average economic system in order to persistent existence. The fourth chapter mainly studies how the market bubbles affect the real economy. The study shows that mild market bubbles can raise the economic efficiency. The economic subjects can achieve the maximum utility when the bubbles and the real economy increase at the same speed. In chapter 5, we firstly definite the connotation of the reasonable market bubbles that reasonable bubbles should be useful to the real economy and can persistently increase without breaking. Secondly, the paper determinates the reasonable scope of the market bubbles from the angle of investment and speculation respectively. Thirdly, using the data of Shanghai Stock Exchange from 1999 to 2005, I analyze empirically the stock market and put the conclusion that the absolute bubble and speed bubble goes beyond the upper limit of the reasonable scope from 1999 to 2005, and that though the absolute bubble is within the scope between 2001 and 2005, the speed bubble is under the lower limit of the reasonable range except 2003. Finally, I put forward some proposals or suggestions for the policies to administer stock market bubble on the basis of the previous theoretical analysis.