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Booms and busts in China's stock market: estimates based on fundamentals

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  • Gabe de Bondt
  • Tuomas Peltonen
  • Daniel Santabarbara

Abstract

This article empirically models China's stock prices using conventional fundamentals: corporate earnings, risk-free interest rate and a proxy for equity risk premium. It uses the estimated long-run stock price misalignments to date booms and busts, and analyses equity market reforms and excess liquidity as potential drivers of these stock price misalignments. Results show that China's equity prices can be well modelled using fundamentals, but that various booms and busts can be identified. Policy actions, either taking the form of deposit rate changes, equity market reforms or excess liquidity, have significantly contributed to these misalignments.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/09603107.2010.530218
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 21 (2011)
Issue (Month): 5 ()
Pages: 287-300

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Handle: RePEc:taf:apfiec:v:21:y:2011:i:5:p:287-300

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Cited by:
  1. Girardin, Eric & Joyeux, Roselyne, 2013. "Macro fundamentals as a source of stock market volatility in China: A GARCH-MIDAS approach," Economic Modelling, Elsevier, vol. 34(C), pages 59-68.
  2. Lin, Xiaoqiang & Fei, Fangyu, 2013. "Long memory revisit in Chinese stock markets: Based on GARCH-class models and multiscale analysis," Economic Modelling, Elsevier, vol. 31(C), pages 265-275.

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