A Study On Chinese Stock Market Bubble Forcast Based On The Logit Model

Since1991, China’s stock market fell several times. Stock market bubble often appears before the severe decline. Excessive stock market bubble will not only affect the healthy development of the stock market, but also bring collapse of the stock market. Firstly, the stock market bubble will lead to errors in allocation of resources. Because the stock market bubble tends to attract a large number of investors and funds into the stock market and crowd out investment in the real economy. Secondly, the stock market bubble will cause unreasonable income distribution, increasing the gap between the rich and the poor. Finally, the stock market bubble increases financial risks and undermines macroeconomic stability. So the prediction of the stock market bubble is very important.We construct a logit model in order to study the predictive ability of the stock market bubble using investor sentiment, macroeconomic variables and stock market variables. The specific contents mainly include the following aspects:The first part is the introduction and literature review. We describe the background and motivation of this research, the influencing factors and the study of stock market bubble. Firstly, we analyze the bubbles in the history as well as the impact of the stock market bubble. Secondly, we describe the stock market bubble in China since1991. Finally, we introduce the bubble theory and the factors on the stock market bubble. The researches show that:macroeconomic factors and investor sentiment have significant impact on the stock market bubble. Then, we introduce the methods about the forecast of the stock market bubble. And the last, there are the purpose of this research and innovation, as well as the structure of the paper.The second part is the review of the theory of the stock market bubble and logit model. In this section, we define the stock market bubble that the stock price is higher than the intrinsic value of the stock market. The researchers have proposed two theories:irrational bubble theory and rational bubble theory. There are some indicators for the stock market bubble metrics:the price-earnings ratio, foam coefficient, income capitalized pricing, Tobin’s Q, the price-sales ratio. Finally, we introduce the logit model and estimation methods.The third part is the empirical part of this article. We select the adjusted price-earnings ratio as a measure of the stock market bubble, and the real market interest rate (INT), the inflation rate (INF), the ratio of domestic credit to GDP (M2/GDP), the monthly rate of return in the stock market,(RET) as macroeconomic variables and stock market variables involved in the logit model, and the consumer confidence index as the proxy variables for investor sentiment. Meanwhile, in order to eliminate the economic fundamentals in the consumer confidence index, we select the value-added of export, the total retail sales of social consumer goods, the consumer price index and the macroeconomic climate index as economic variable fundamentals agent.We choose115months of monthly data from July2002to January2012as a sample model. We found that the model have high prediction accuracy. The average accuracy rate is91.3%. We choose Monthly data from February2002to June2002and February20122to June2012as empirical tests. The probability of the bubbles is more than99%during February2002to June2002. The probability of the bubbles is close to0during February2012to June2012.This conclusion is consistent with the result according to the price-earnings.The innovations of the study are as follows:Firstly, we use the logit model to build the forecasting model of the stock market bubble.Secondly, we introduce macroeconomic variables to measure the impact of macroeconomic variables on the stock market bubble.Finally, we introduce the investor sentiment variables to measure the impact of investor sentiment on the stock market bubble. In this paper, the consumer confidence index is used for the proxy variables of the investor sentiment.There are some shortcomings:First of all, the classification of the stock market bubble is sketchy.Secondly, other factors such as laws and regulations have the impact on the stock market bubble.There are many issues worth exploring, I will study hard and hope for a breakthrough in this issues in later life.