An empirical study of rational bubbles in Chinese stock market: Evidence from Shanghai Stock Exchange
ABSTRACT The economy in China has steadily grown for thirty years. However, as the most important financial channel, the stock market in China obviously does not soar in accord with the economy. The depression ended at 2006, at which time the Chinese stock market began to rise. Until June 2007, the...
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| Format: | Dissertation (University of Nottingham only) |
| Language: | English |
| Published: |
2007
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| Online Access: | http://eprints.nottingham.ac.uk/21200/ http://eprints.nottingham.ac.uk/21200/1/07MAlixyz30.pdf |
| Summary: | ABSTRACT
The economy in China has steadily grown for thirty years. However, as the most important financial channel, the stock market in China obviously does not soar in accord with the economy. The depression ended at 2006, at which time the Chinese stock market began to rise. Until June 2007, the SSE index has increased from around 1,500 points to nearly 4,000 points in one year. Is this flourish rationally reflected the fundamental value or the fad to induce bubbles? The scholars in China are still disputing on this topic. By providing an empirical evidence for the actuality of Chinese stock market, this dissertation aims to see to what extend the bubbles are present in Chinese stock market. Furthermore, a discussion on the cause of bubbles will be given to support the empirical result.
The tool to detect bubbles is called duration dependence which was first introduced by McQueen (1994). The rational of the duration dependence is the possibility that the bubbles burst will decline with the length they last. If such property is observed in the runs of positive abnormal series, then it can be concluded that the bubbles are present. To obtain the abnormal return series, the improved AR (3) ,GARCH (1, 1) model is adopted. The result of significant negative parameter of the duration dependence test indicates that bubbles possibly exist and are enlarging in Chinese stock market, especially after 2002. |
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