The Gem Market Bubble Recognition, Forming Mechanism And Empirical Research

Since the establishment of GEM (Growth Enterprise Market), problems like "Three High" problems (namely high issue price, high price-earnings ratio, and high scale of fund-raising) have been existed. These problems have kept the whole market into extreme exuberance, while the investors’ trading behaviors also tended to be irrational. In this context, the question on whether there exists bubbles in GEM has long been debated among both academic world and mass investors. However, correlative conclusions drawn are mainly based on qualitative analysis. Until June2010, GEI (Growth Enterprise Index) were launched, which provided with us effective data support for quantitative analysis on studying the whole market operation.For this thesis, according studies attempt to solve two problems:one is to judge whether there exists bubbles in the past years since the GEI was launched in China’s GEM; the other is to explore the formation mechanism of GEM bubbles and digging out the motivating factor behind the bubbles.To solve the two problems above, this thesis first reviews former studies in this area, and then compares operation status of Shenzhen GEM and many other mature GEMs around the world. After that, this thesis adopts approaches such as run test and duration dependence test for recognition on GEM bubbles, and uses mixed rational positive feedback model for reassuring the significance of positive feedback strategy in the formation process of bubbles. Next, empirical tests provides with the evidence that there exists many positive feedback trading in China’s GEM. At the end, on the basis of conclusions above, this thesis gives some reasonable recommendations on future healthy development of GEM in China.