An Empirical Study On Irrational Bubbles In Chinese Stock Market

Chinese stock market officially began its trading trip since the Shanghai Stock Exchange and Shenzhen Stock Exchange have been established at December,1990.The stock market has gone through nearly three decades of exploration and development,its size and system are constantly improving.The expansion of the scale and rapidly growth of many enterprises can not be separated from the stock market financing function,it can be said that the stock market plays a pivotal role in promoting Chinese economy,and becomes an important part of the international capital market.But at the same time,the stock market often take place some unusual cases,such as the herding effect,thousands of shares limit daily limit,month effect and so on,and these can not be reasonably explained with the traditional financial theory.Speculation prevails in Chinese stock market,and hot-topic often change with the government policy.So it can also call Chinese stock market "policy market".The Chinese stock market rose too fast and fell sharply in 2007 and the end of 2014,this against the theoretical hypothesis that propose the stock price should fluctuate around its basic value.And it brought investors psychological gap from the crazy to desperation,also brought numerous heavy losses.Compared with other countries,Chinese stock market presents a unstable and unhealthy prosperous condition.It is difficult to used the traditional economic theory to explain these abnormal situation.So we should to analyze it from the view of irrational behavior of investors.From the view of Behavioral Finance,this paper analyzes and explains the irrational prosperity of Chinese stock market on the basis of the relevant theories of stock market bubble.We can find the existence of non rational nature of prosperity from crazy rising of stock prices,huge volume,high turnover rate and price earnings ratio and the rising number of new investors in the stock market.By using the residual income model to measure the size of irrational bubble,it confirmed that China’s stock market does exist irrational bubble in recent years,the performance in Shenzhen stock market is in especial.Therefore,the author makes a theoretical and empirical study on the causes of the irrational bubble in the stock market,that is,theoretically analyzing the factors that cause the irrational bubble in the stock market,and exploreing the deep factors that influence the formation of irrational bubbles,and empirically testing the influence of the effect and simulating the bubble generation process,so as to understand the process of the formation of irrational bubbles.The results show that investors’ sentiment and excess liquidity are the factors that cause the irrational bubble generate.And the excess liquidity also has positive influence on the change of investors’ sentiment.In order to avoid or reduce the"gambling" investment,speculation and other irrational behavior in the stock market,this article put forward some suggestions from the angle of investor education,strengthening the information disclosure,improving the securities market system,and guiding the flow of funds,hoping that these have a certain guiding effect on healthy development of the stock market and investors’ rational investment.