Identification Of The Stock Market Bubble And The Impact Of Credit Policies On Its Generation

Since the "South Sea Bubble" and "Mississippi bubble",stock market bubbles are momentous financial events that are fascinating to academics and practitioners alike.China's stock market is still in its initial state,the stock market is extremely imperfect.Systematically researching into Chinese stock bubbles have important significance and practical values to the healthy development of financial markets(in particular the capital market).This article starts with the definition of the stock market bubble.With the basis on presentation of the literature of the stock market bubble,our paper gives a definition of a stock market bubble;we then explore the classification of the stock market bubble and introduce the rational and non-rational bubble model.We introduce the formation and operation of the mechanism of bubbles.Subsequently,we introduce that liberal credit policy might be the reasons for the stock market bubble.After that,we introduce and analyze the measurements and test methods of stock market bubble.We analyze and comprise the Variance Bounds Test,West's Two Step Test,Unit Root Test,Forward Recursive Regression Test and Duration Dependence Test.Then we review the literature of domestic scholars' study on the tests of Chinese stock market bubbles.At the beginning of 2007,with the stock index breakthrough 3000,there is an outbreak discussion about whether there is a bubble in the domestic stock market or not.We employ forward recursive regressions test,the latest test method of stock market bubbles,to empirical test whether there are stock bubbles in Chinese stock market in 2007.Our empirical application to Chinese stock price index in the 2007 provides confirmation of the existence of a financial bubble and date-stamps the origination of the bubble to November 2006.Which support many domestic economists and Alan Greenspan' conclusions that there are irrational exuberance in Chinese financial market. Finally,we employ some relevant variables to carry out an analysis of the causes of Chinese stock market bubble in 2007.The credit system resulted in many short-term borrowing and the increase in foreign exchange funds such as foreign trade surplus and other hot money inflows are probably caused Chinese stock market bubble.