The Formation Mechanism And Empirical Studies On Bubbles In Chinese Stock Market

The innovation of financial system has been carried on for several years. At present, the stock market of China has already formed a series of distinctive management systems and operation manners. A lot of researchers have studied on many problems of the stock market in order to make its operation mechanism and economic institution perfect since it was established.Indubitably, there are flaws in the stock market since it was established. The enterprises in the stock market are destined to have the characters different from the developed stock markets, even the flaws of system, because the stock market of China aims at financing for the big country-owned enterprises. The process of stock market development also indicates the quite severe consequence due to distemperedness of the system.In the stock market, the behavior of investors determines fluctuation and future trend of stock price. In the mature market, the investors decide to how to invest based on the fundmental analysis of stocks if the market is semi-strong efficient. Then, the development of the market is the gradual process. However, the difference between price and the fundmental value indicates the inefficiency of the stock market. If the price is higher than fundmental value, it is called bubbles. The emergence of bubbles will increase instable factors in the economy. Especially, the marked degree of bubbles significantly affects on economy. Therefore, it is significant to recognize and test the existence and degree of bubbles. Based on this point, the paper examines the formation of bubbles of Chinese stock market and tests them.There are four chapters in the paper. The main content and researches are following:The first chapter summarized the literature on bubbles. First, the researches on stock bubbles are summed up. The researches are divided into three parts: the researches on traditional bubbles, the researches on bubbles in the behavior finance and the researches on bubbles in the experimental economy. Then, the three different theories and researches are, respectively, presented and commented briefly.In the second chapter, the formation mechanism of stock bubbles is studied. First, the formation theory of bubbles in the traditional economy is got based on the pricing models. Bubbles are classified as Markovian bubbles, intrinsic bubbles and exterior bubbles based on behavior finance. Noise traders are the root of the bubbles of the stock market. Then, bubbles formation mechanism of stock market is studied. Third, the two states of herb behavior and price manipulation from the point of view of speculative behavior are distinguished, and then the formation mechanism of bubbles is given. Last, empirical methods and test methods to bubbles of the stock market are presented. The methods include the test of rational bubbles, ratio pricing and other empirical methods. In the third chapter, most of the methods are used to study.In the third chapter, the empirical study on the traditional bubbles is presented. First, existence, degree and development state of bubbles in the stock market are analysed based on the traditional bubbles test. Then, bubbles in the stock market are analysed using run test, autocorrelation test and Tobin's q test. Data is processed by programming in Visual Basic. The conclusions of the chapter are that results of run test indicate that bubbles emerge easily in Chinese stock market. The development process of the whole market can be divided into three intervals. They are from 1990 to 1997, from 1998 to 2001 and from 2001 to 2006. The result of Tobin's q test indicates bubbles in the whole market exist at all time and bubbles do not disappear after several adjustments of bear market. In the fourth chapter, MTAR is used to further study on the stock indexes based on the results of the third chapter. First, cointegration test isn't used for testing the relationship between stock price indexes and macroeconomic variables'indexes until all variables'unit roots are same. It is not necessarily known that bubbles in the stock market exist or not, using traditional cointegration test. In order to research further, it is necessary to test cointegration error and review the fluctuating trend and direction of error. It is most important to test the symmetry of error. Therefore, the fact that price adjustment in the stock market trends to forming or removing bubbles can be judged correctly. The core of the method is to built the TAR model. That means that error is got from the cointegration equation first; TAR is used to test error; the non-symmetry of fluctuation of error is reviewed and then the fluctuating velocity and characters are given.The empirical results in the chapter indicate the stock price trends to form bubbles and price is different from the basic value obviously in both Shanghai's market and Shenzhen's market. In the other hand, price is adjusted quickly when error is higher than threshold. That means that bubbles restore quickly so that stock market fluctuates at all time. The testing results indicate bubbles in stock market can form easily after 1998 and the market trends to being uncertain.Totally, most of the study methods to bubbles in the stock market are included in the paper. Data selected also presented the whole development process. The conclusions in the paper are quite reliable. However, problems about information could not be researched deeply because part of data is not obtained. But, indubitably, it becomes an important aspect of studying on bubbles in the stock market.