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

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  • Gabe J. de Bondt

    ()
    (European Central Bank)

  • Tuomas A. Peltonen

    ()
    (European Central Bank)

  • Daniel Santabárbara

    ()
    (Banco de España)

Abstract

This paper 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. Our results show that China's equity prices can be reasonable 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, seem to have significantly contributed to these misalignments.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/10/Fic/dt1032e.pdf
File Function: First version, October 2010
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Bibliographic Info

Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 1032.

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Length: 28 pages
Date of creation: Oct 2010
Date of revision:
Handle: RePEc:bde:wpaper:1032

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Keywords: China; Stock price; Equity market; Reforms; Liquidity;

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References

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Cited by:
  1. 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.
  2. 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.

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