Research On Bubbles In China Stock Markets

Stock market bubbles research is always the emphasis the experts in both financial theory and practical filed paying attentions to, and it is also a difficult topic. In recent years, under the drive of the stock ownership structure reform, China's stock markets flourished quickly, the average stock price in the stock markets increased strongly. To the wide increase of the stock price, someone says that is the regression process of the price to value based on the good performance of the listed companies, but others say that is the excessive reactivity of the market to a series of good news and there are some kinds of bubbles in the markets. Accordingly, the debate of the stock market bubbles is continuing in this new economic situation, and the research of the stock marker bubbles has a specific significance.The main purpose of this paper is to estimate China stock market bubbles objectively by trying a new theory and method, which is useful to explain the fluctuation of the whole market and the recent rapid price increase of the stock market, and to provide some policy advices to control the bubbles. Firstly, the paper looks back on the relevant research achievements in the past, and then analyses the mechanism of rational bubble and irrational bubble in the stock market after defining the stock market bubbles. Secondly, the paper gives a summarization of China stock marker bubbles by studying the basic variables of P/E ratio, stock exchange rate and the expansion ratio. Then, the paper gives an empirical test on bubbles of Shanghai A-Share market by using a dynamic and adjustable model based on the real yield rate. The above model is based on the restrictive random walk theory, and it can be used to test and estimate the stock market bubbles dynamically owing to it's adjustable characteristic.The paper tests the bubbles in Shanghai A-Share market from October 2004 to December 2007, and finds that there are one plus bubble process and one negative bubble process in the 39 months. The paper also explains the reasons of the appearance of the plus bubbles tested from March 2007 to December 2007, and give the advices to prevent and control bubbles from the macrocosmic aspect and microcosmic aspect based on the real economic situation of China.