Research On Formation Mechanism And Identification Of Irrational Bubbles In Stock Market

In the background of China’s total economic output ranking the second largest country in the world,there is a need to build a strong capital market for China.In recent years,China clearly puts forward to build a bigger and stronger stock market,which is referred to the unprecedented height strategic position.However,China’s stock market due to the system and the environment reasons,making the stock to be irrational seriously,and producing more serious irrational bubble.The reality of Soaring and plunging was not conducive to the stock market’s long-term healthy development,but also greatly threats to financial stability.What is the Irrational bubbles’ formation and collapse,how to construct an effective model of irrational bubbles recognition to make the corresponding effective measures,which are the important issues for the participants of the market concerned about.The traditional financial theory is based on the theory of "rational man" and efficient market,which ignores the actual decision-making behavior of investors,which leads to the economic issues or behaviors can’ t be explained.In recent years,the financial theory research shows that: the financial theory is from only focusing on the price behavior to gradually pay attention to the volume of transactions and research the psychological behaviors of the content and information it contains,and volume and price as a whole to analysis the characteristics of the capital market,which is the research’s new development and trend.Through the above analysis,this paper is to analysis the mechanism of irrational bubbles’ formation based on the behavioral finance theory from the perspective of investors trading,then analysis the stock market of China’s specific situation and environment of inductive.In above theoretical and practical framework,this paper identifies the existence of irrational bubbles of Shanghai Composite Index.The research is based on the TAR model.The sample is from October 28,2008 to March 18,2016,selecting three indices of the SSE Composite Index amplitude,rate of turnover,rate of volume change.The results show that: in the sample interval,the irrational bubbles of China’s stock market are always existing,but generally will not exist constantly.There are two obvious and serious bubbles in 2013 and 2015,Further to make a deep research on the most serious irrational bubbles in 2015,founding that the Medium Small Plates and the GEM are also existing bubbles in the same period,and the bubbles level of Shanghai stock market is minimum,the bubbles degree of GEM is maximum.At the same time,also founding that the stock market bubbles,appeared earlier in the GEM,and then concentrated in the Medium Small Plates.The identification of the bubbles is on the basis of the existence of bubbles,then analysis the leading factors of irrational bubbles using VAR models in the sample of 2014-2016,the sample is divided into "Bull" and "Bear" two stages to be identified.The current stock market trading system and the environment of the Internet are conformed when select indexes,which is the "STOCK" of the Baidu keyword,margin amount,the number of price limits.The results showed that:The formation of the stock market bubbles is due to the leveraged transactions,the rising contribution reached 37.35%;however,pessimism and the dominant factor are the overreaction of investors when the bubbles burst,the rate of contribution reached 40.33% decline.It is obvious that the dominant factor of irrational bubbles in China’s stock market is not symmetrical.The research of this paper is based on the theory of behavioral finance,and fully respects the special system of China’s stock market and the fact that the irrational factors are more important.In the study of the formation mechanism of irrational bubbles,the actual decision psychology of investors is set out.The identification problem using TAR and VAR model in the stock market of our country of irrational bubbles,not only for the existence of bubbles were identified through quantitative analysis of dominant factors of irrational bubbles.Papers in the stock market bubble of the recognition method avoids the valuation problem caused by the deviation of results,from the amount of the transaction price and volume and price transformation in the perspective of the process of identification,the method reduced systematic bias,with high reliability.To accurately identify the stock market non rational bubble,control financial risks and safeguard the financial order and prevent financial crisis and promote the stable and healthy economic development,for investors to provide the scientific investment decision,as regulators provide reasonable policy basis,which has important practical significance.