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 cannot 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.In academia, scholars usually get different conclusions for the same bubble phenomenon. Therefore, in the complex and numerous bubble theory to clarify ideas, to grasp effectively the appropriate analysis methods, to summarize the progress and shortcomings of the existing theoretical models can be grouped not only improve the existing theory of bubbles, use the existing model to explain the growing number of reality the bubble phenomenon, but also provide a more realistic direction and ideas. As the purpose of this article, we take the Chinese stock market bubble as the main contents and study the pros and cons as well as development prospects of both theoretical models. On the basis, we explore the empirical test methods which have the reality closest relationship under the theoretical model, and combine with the actual situation of Chinese stock market, attempting to explore the status and characteristic of Chinese stock market and corresponding policy recommendations.The basic structure consists of five parts. The first part is the introductory, proposes the research background and topic significance. The second part is a literature review of the financial market. We divide the financial market into the rational bubble model and non-rational bubble model on the basis of the rational trades. The third part is an overview of the stages of Chinese stock market development, and summed to the characteristics of Chinese stock market. The fourth part is the empirical part. The first is a simple overview of the testing methods of asset bubbles, and then the specific empirical part, including data sources, data, statistical description, build and test of empirical model. The empirical test insists of the duration dependent test, model test and cointegration analysis of industry segment. The fifth part focuses on some policy suggestion on our present stock market.The conclusion is:First, this paper employs duration dependence to investigate the existence of rational bubbles in China stock market. Then use the test data comparatively analysis the Hong Kong-listed mainland enterprises. The result shows that the characters of Chinese stock market conform to the deduction of rational bubble with weekly data, but no monthly data shows a clear bubble. Hong Kong stock market has no bubble to exist with weekly or monthly data, which shows that Chinese stock market is less effective and perfect than Hong Kong stock market. Second, this paper employs the correlation test to explain that there is a consideration degree of bubble in Chinese stock market, and the bubble degree has a larger trend in the near future. Although Chinese stock prices began to decline after2007, which is a manifestation of bubble burst, bubble composition still has a decisive impact on changes in stock prices. Third, this paper takes the cointegration analysis between the industry sector index of Shanghai Stock Exchange and the Shanghai Composite Index. The result shows that the five sections of the telecommunications index (ITS), the industrial index (GYS), the financial index (JRS), the pharmaceutical index (YYS) and the main consumer price index (ZYXFS) have long-run equilibrium relationship with the Shanghai composite index.The possible innovation of this article is in the following several aspects, first, this article uses duration dependence tests which is unique for bubble to test Chinese stock market, and carries out comparative analysis between the Chinese company’s shares listed in Hong Kong and Shanghai, Shenzhen stock. Second, data analysis includes the stock market data between1997and2011; this article conducts an empirical analysis in this range with the use of correlation model. Third, we classify the SSE industry sector and find the major sectors which cause the stock market bubble.