Empirical Test Of Stock Bubbles And Value Investing Strategy In China

Beginning with the foundation of Shanghai and Shenzhen stock Exchanges in the latter of1990s, after20years of reform and development, the capital market of china growing out of nothing, and expanding from small to large, has gradually growing and made great progress. But without a doubt, so far, China’s capital market is currently still very young and immature, lack of depth and breadth, which is still an emerging and transitional market. There are many deficiencies in this capital market, whether in the market structure and operational efficiency or in product innovation and development quality and so on. The market can not meet the huge demand cause by the development of economic and social.With the stock market started in2006, a climate of speculation in the stock market has become increasingly serious; the level of valuation gradually increasing and bubble began to expand which means the price of the stock is greater than the value of the stock. In the same time, the value investment strategy has also begun to gradually deeply root among the people.At the same time, domestic and foreign scholars paid more attention on the stock bubble and value investment. The research on stock bubble focus more on the inspection of the bubble, how to measure it, the nature of bubble and so on. Research on value investment strategy focused on the feasibility of value investing, market performance of value investment as well as the reason of why value investment can get excess returns. These studies have drawn a lot of useful conclusions. The purpose of this research is through the definition of the stock market bubble, starting from an investor perspective, determine the existence of the stock market bubble period and size, and compare the different degree of emphasis on the value of the investment strategy bubble investment results.First of all, this paper describes and reviews the literature of stock bubble and value investment. Reviewed and summed up the value of domestic and foreign investments on the stock market bubble, as well as the related research results, study the theory of value in previous studies and research methods, in order to take over where this article laid the foundation for the study. Then, introduce the necessary basic concepts and basic theory, including the value of investment in the stock market bubble and the related concepts and theories. And analyzed the current situation and problems of China’s stock market, sort out domestic and foreign stock market investment philosophy change process. Finally, this paper uses of Residual Income Valuation Model (RIV) empirical test the bubble extent of China’s stock market from2000to2008. According to the division standards of B/M and E/P, Empirical analysis the benefits of value investment in the nine years. The results showed that the bubble in the stock market of china more severely in2000,2001and2007. Value investment get excess returns between the nine years, and the reason why value investment can get excess returns can be explained by market risk factors. Based on the empirical results, this paper made four policy recommendations on how to promote the prosperity of the stock market and Inhibit the stock market bubble.