An Empirical Test On The Bubble Of Chinese Stock Market

In 2005, the Chinese stock market began a sustained bull market for two and a half years with the beginning of split share structure reform. The Shanghai Stock Exchange Index rised from 998.2 point on June 6, 2005 to 6124.0 points on October 16, 2007, but also in fell below than 2000 points in less than 1 year. In the Fourth quarter of 2008, China launched four trillion economic stimulus plan and aggressive monetary policy in response to the global financial crisis. And then another bubble began in Chinese stock market, the Shanghai index began to rise in October 2008, and reached 3412.06 points in July 2009 then began to fall. The existence of bubble threatens the stability of the financial system and the economy. The bursting of bubble is one of the major causes of financial crisis and economic depression. Therefore, it is necessary to study the mechanism of the formation of bubble, so as to serve the economy the rapid.Introduction is the first chapter of this paper, we first introduced the background of the stock market bubble in China, and review the history of the bubble events in retrospect to illustrate the bad effect to the financial and economic systems and the dangers presented empirical stock market bubble in China examine this important issue.In the second chapter, we present a literature review on the mechanism of bubble formation and empirical research. First, we explained the rational and irrational bubbles models and theories. Then, we reviewed the method and achievement of both domestic and foreign scholars. The third chapter is the empirical research component. Firstly, we use the bubble test method provided by Campbell. Second, we use the log-periodic power law model (LPPL) to identify the critical point of the bubbles.In the final chapter we analyzed the reasons for the Chinese stock market bubble based on the results of theoretical analysis and empirical study, and make policy recommendations.This conclusion is that the Shanghai Composite Index did not significantly deviate from its intrinsic value in 1993-1996 and 1997-2004 and did significantly deviate from its intrinsic value in 2005-2007 and 2008-2010. 2005-2010, the Chinese stock market bubble. It is possible to identify the critical point of a bubble before it burst using LPPL model, which provide a method for predicting the crash of stock market.