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Stock craze: an empirical analysis of PER in Chinese equity market

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Author Info
Mohamed El Hedi AROURI () (LEO (Laboratoire d'Economie d'Orléans) and EDHEC (Ecole des Hautes Etudes Commerciales))
Chen Xiang LIU () (EconomiX, Université de Paris X—Nanterre)

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Abstract

China’s Shanghai and Shenzhen stock markets have been on a bullish run since the end of the split-share reform. The sharp gains are raising worries about stock overvaluations. We investigate the determinants of booming stock markets in modelling PER (price-earning ratio) over the available sample period 2000-2007 in Chinese A-share market with co-integration and error correction model specification. These results show that the market is driven primarily by the massive influx of fresh funds rather than corporate fundamentals. Regulators have been striving to cool down the surging stock markets for the good of long-term economic development and social stability.

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File URL: http://economicsbulletin.vanderbilt.edu/2008/volume14/EB-08N20002A.pdf
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Publisher Info
Article provided by Economics Bulletin in its journal Economics Bulletin.

Volume (Year): 14 (2008)
Issue (Month): 1 ()
Pages: 1-17
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:ebl:ecbull:v:14:y:2008:i:1:p:1-17

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Related research
Keywords: Shanghai and Shenzhen A-share markets; price earning ratio (PER); market bubble; regulation;

Find related papers by JEL classification:
N2 - Economic History - - Financial Markets and Institutions

References listed on IDEAS
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  1. Eugene F. Fama & Kenneth R. French, 2002. "The Equity Premium," Journal of Finance, American Finance Association, vol. 57(2), pages 637-659, 04. [Downloadable!] (restricted)
    Other versions:
  2. Robert D. Brooks & Vanitha Ragunathan, 2003. "Returns and volatility on the Chinese stock markets," Applied Financial Economics, Taylor and Francis Journals, vol. 13(10), pages 747-752, October. [Downloadable!] (restricted)
  3. Ramcharran, Harri, 2002. "An empirical analysis of the determinants of the P/E ratio in emerging markets," Emerging Markets Review, Elsevier, vol. 3(2), pages 165-178, June. [Downloadable!] (restricted)
  4. John Y. Campbell & Robert J. Shiller, 1989. "Stock Prices, Earnings and Expected Dividends," NBER Working Papers 2511, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Jianping Mei & Jose Scheinkman & Wei Xiong, 2005. "Speculative Trading and Stock Prices: Evidence from Chinese A-B Share Premia," NBER Working Papers 11362, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November. [Downloadable!] (restricted)
  7. Eric Girardin & Zhenya Liu, 2003. "The Chinese Stock Market: A Casino with 'Buffer Zones'?," Journal of Chinese Economic and Business Studies, Taylor and Francis Journals, vol. 1(1), pages 57-70, January. [Downloadable!] (restricted)
  8. Keith Anderson & Chris Brooks, 2006. "The Long-Term Price-Earnings Ratio," Journal of Business Finance & Accounting, Blackwell Publishing, vol. 33(7-8), pages 1063-1086. [Downloadable!] (restricted)
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This page was last updated on 2009-11-16.


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