Investigating Stock Price Bubbles In China

With the rapid development of China stock market,it plays a more and more important role in capital market.Its healthy development is of great significance to the stable and sustainable development of China's capital market and even national economy.However,once the China stock market is considered one of the highest valuation stock market in the world,the debate has never stopped that whether the stock price bubble exists and whether the bubble should be intervened or not.From the test of asset bubbles to start,this paper revolves around speculative stock price bubbles in China to conduct theoretical and empirical research.In this paper,we first comb the research development of the stock market bubble test,and then focus on the theoretical model of the bubble of the stock market and the research method proposed by Phillips et al.(2011)-the sup right-tailed ADF test(SADF)and its extended model Generalized sup right-tailed ADF test(GSADF).Subsequently,we analyze the finite sample properties of GSADF?SADF and right-tailed ADF by Monte Carlo simulation,and compares their performance of size and power in different scenarios,and thus find out that GSADF methods are more effective in testing multiple bubbles.Finally,we discuss the speculative bubbles in Chinese stock markets based on generalized sup right-tailed ADF test(GSADF),and estimate the origination date and termination date of a bubble according to the backward sup right-tailed ADF test methods.This paper analyzes the basic characteristics of Chinese stock market bubbles systematically using GSADF method.The results show that the Shanghai composite Index,Shenzhen component index,small board index and the growth enterprise market index all have bubbles.The identified periods of exuberance in the Shanghai Composite Index include 1997M4-1997M8,2000M6-2001M7,2006M12-2008M1,2015M1-2015M6,and bubbles of different index appear at the same time period.Besides,the origination and collapse of bubbles in Shenzhen component index are earlier than Shanghai Composite Index.The contributions of this paper have strong policy implications for establishing a mature stock price detective and precautionary system,so as to improve the governance system of Chinese capital market.