The Empirical Test Of Asset Bubbles In China A-Share

The word of "Asset Bubble" has gone with the stock market ever since the market is born. It plays a role in the healthy development of stock markets, when the asset price get a sharp rise in a short period it generates amount of profit for the holders, when it bursts the investors experience the ruin of an illusion. Some crashes of financial markets also derived from the generation and burst of asset bubble. Therefore, the asset bubble in stock market has always been a hot academic field, where large literature has flourished. In 2013 the grow enterprise market (GEM) of China has raised by 80%, which is really a outstanding performance, while the whole A-share market of china has been in a bear market for a long time. This bolsters investors’confidence, as while as a cause for concern. People doubt that whether the go-up trend is an indicator of growth enterprise or an asset bubble? This question has not got an academic answer currently. So the topic of this paper——bubbles in growth enterprise market, is very timely and meaningful.There are five chapters in this paper. First of all, we need to review the theoretical development in asset bubble field both at home and abroad. The second chapter gives some historical and typical case studies of bubbles, in order to summarize the characteristics of general asset bubbles, and induces some concepts used next. The third chapter reveals two models used to test bubble in GEM, including model principle and model derivation. The forth chapter carries out the empirical test of GEM index and ten sector indexes listed in Shenzhen Stock Exchange, and explains the results of empirical tests. The last chapter summarizes the main point of this paper and proposes some promising research directions in the future.The two model used for empirical test is Dynamic auto-regression model and Log-periodic power-law model. The Dynamic auto-regression model shows that there is irrational bubble in GEM index, index of information and index of telecom during the period 2013.01-2014.02. The result of Log-periodic power-low model is a little different. It says there is ir-rational bubble in GEM index, index of information and index of telecom and as well as index of pharmaceuticals. Compared the bubble tested from the two models with the NASDAQ index in 2000, when the USA is experiencing Internet bubble, we can see the bubble is growing in GEM and need some time to burst. This quantitative and qualitative assessment give investors some guide when position there assets.The writing significance of this paper is that the model used here to test bubbles can also be used in empirical works in other asset markets, such as the bubble of real estate price. The method of comparing the characteristics of GEM and NASDAQ Market can also be referred when study other A-share markets in china.