Test On China’s Capital Markets’ Bubble Risk And Relationship Of Bubble Risk Among Markets

Asset price bubble can lead to serious impact on on the financial system or even the real economy, so bubble risk is always highly valued by national supervisors and scholars. In the empirical study of bubble risk, researchers have found that bubbles in different capital markets are not independent but with transitive relation. Many empirical researches on China’s capital market bubble have been done, but more are concentrated in individual market and less are focused on the relationship of capital markets. Taking the close ties of different capital markets in China into account, it is necessary to explore the bubble relationship of China’s capital markets. In addition, Shanghai and Shenzhen stock markets experienced the crash in 2007 and the first half of 2015, so it is necessary to examine the latest and historical bubble risk to meet the need of risk monitoring and crisis prevention. Bubble test method is the foundation of empirical research, and also is the forefront and hot spots in academia. With bubble hypothesis close to the reality gradually, bubble risk test methods are evolving from the early linear methods to nonlinear methods, and nonlinear methods are evolving from single bubble test methods to multiple bubble test methods recently, so the explanatory power of bubble in reality is improved continuously. However, currently single bubble test methods are mainly used in domestic researches, so it is necessary to do some test methods improvement under multiple bubbles condition. Therefore, with consideration of empirical research and test model, this article tests bubble risk of different capital markets in China based on test models’improvement, and further grasp markets’bubble relationship.Firstly this article combs related literatures, including empirical research and test methods’development process, so as to lay the foundation for methods improvement. Then learning from the idea of models evolution from SADF and BADF to BSADF and GSADF, we improve SDFC, SBT, CUSUM that have relatively good test ability under single bubble. Through Monte Carlo simulation we prove improved test methods have better test ability than before under multiple bubbles. Then apply multiple bubble test methods on stock market, real estate market, precious metals market and other capital markets in China to test historical and current bubbles risk, including testing whether bubble exists, when bubble emerges and when bubble bursts. Further explore the relationship of bubbles among China’s capital markets. The empirical research shows that there are multiple bubbles in China’stock market, real estate market, part of commodity futures markets, precious metals spot market, but currently these markets is not in bubble phase. Related to rate cuts, the latest bubble in Shanghai stock market continued from December 2014 to May 2015, and the latest bubble in Shenzhen stock market lasted from February 2015 to May 2015. In real estate market, there was a higher proportion of bubble duration but no bubble phase now. Grain future market had three bubbles and is just right in bubble phase. Real estate market has relatively high proportion of bubble phase. Different market segments in commodity futures markets has different bubble situation. There is no bubble in high credit rating bond market. Because of investors’risk aversion behavior in the stock market crisis, China’s different capital markets reflect the relationship of bubble transfer sequence. The stock market bubbles are often associated with the real estate market bubble almost in the same period. With the stock market bubble bursting, bubbles appear in gold and platinum spot markets, then in part of commodity futures market.