The Formation Of Asset Bubbles And Countermeasures

Comparing with traditional finance economics, behavior finance takes theadvantages on the irregular phenomenon of the market. Using the research frompsychological and behavioral science, the behavior finance widen the field of finance.The EMH described a perfect market with the automatic market equilibrium.Differently, in the real world, the investors cannot reach the totally ration and theirrational behavior took some communion, and the arbitrage is also under somerestriction comparing to the unlimited arbitrage. In this case, the investors’ strategywill deviate from the forecast coming from the EMH. Behavior finance focuses thereal strategy and the decision of the investors in the real world. There are three typicalirrational behaviors in the theory, Inadequate response to overreact and positivefeedback trading is Behavioral Finance pointed out that the three non-rationalbehavior. Conservative bias noise traders on the new information showed inadequateresponse to the impact of new information will gradually react to the stock price; theother hand, the representative information deviation investors would overreact, is theprice of more than rational expectations. Noise traders in the actual transactionprocess, due to asymmetric information, lack of expertise and other reasons, will usepositive feedback trading strategies, that is, buy when the shares rose, fell, sell. It isbecause of inadequate response, overreaction and positive feedback of the existenceof the transaction, making stock prices deviate from their intrinsic value.On the theory of bubble formation can be divided into four categories: the theoryof rational speculative bubbles and irrational speculative bubble theory, hybrid theorytheory of bubbles and market environment, the bubble theory. The first threetheoretical study on bubble formation in the internal, but different assumptions ofeach theory; The fourth is the external causes of bubble formation, mainly from thesystem, cultural and other factors start. Positive feedback trading theory is the theoryof irrational speculative bubble in the areas of behavioral finance, the interpretation of asset bubbles, while good, but there are two deficiencies: First, the interpretation ofthe bubble formation process is incomplete. This article believe that a completebubble formation process should be divided into three stages: the beginning of thebubble, the bubble swell and burst of the bubble, positive feedback trading theorieswhich explain how the foam is swelling, explained the beginning of the bubble andrupture incomplete. Second, the origin of the bubble unreasonable. Positive feedbacktrading theory is that the beginning of the bubble is because the arbitrageurs internalinformation, and the use of internal information pulled prices caused by positivefeedback trading, but in reality, arbitrage internal information can also be caused bypositive feedback trading, and then form bubble.Finance in the grooming behavior and lack of response, overreaction andpositive feedback transactions study at the same time, finishing on the bubbleformation theory. Combined with positive feedback trading theory, joined theinadequate response to overreact, explain three bubble formation process. GARCHmodel test of positive feedback trading on the Shanghai and Shenzhen300Indexobtained the CSI300Index conclusions of positive feedback trading.