Reasonable Price-earnings Ratio And The Bubble Of The Chinese Stock Market Research

P/E ratio is one of the most important indices which are widely used to measure the risk of stock market. To identify the extent of bubbles in China's stock market, firstly, the author determines the intrinsic P/E on the basis of the profound theory of F-O model. It can be inferred from the results of the model that the intrinsic P/E is not a constant; it is determined by the values of net assets, income, and other variables. Also, by utilizing the model into China's stock market, it can be seen that the bubbles of the market in recent years have become acceptable; and they are frequently influenced by the principles and rules issued by government.