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

Author

Listed:
  • Chen Xiang LIU

    () (EconomiX, Université de Paris X—Nanterre)

  • Mohamed El Hedi AROURI

    () (LEO (Laboratoire d'Economie d''Orléans) and EDHEC (Ecole des Hautes Etudes Commerciales))

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.

Suggested Citation

  • Chen Xiang LIU & Mohamed El Hedi AROURI, 2008. "Stock craze: an empirical analysis of PER in Chinese equity market," Economics Bulletin, AccessEcon, vol. 14(1), pages 1-17.
  • Handle: RePEc:ebl:ecbull:eb-08n20002
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    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, April.
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    3. Jianping Mei & Jose A. Scheinkman & Wei Xiong, 2009. "Speculative Trading and Stock Prices: Evidence from Chinese A-B Share Premia," Annals of Economics and Finance, Society for AEF, vol. 10(2), pages 225-255, November.
    4. Myron J. Gordon & Eli Shapiro, 1956. "Capital Equipment Analysis: The Required Rate of Profit," Management Science, INFORMS, vol. 3(1), pages 102-110, October.
    5. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    6. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    7. Robert Brooks & Vanitha Ragunathan, 2003. "Returns and volatility on the Chinese stock markets," Applied Financial Economics, Taylor & Francis Journals, vol. 13(10), pages 747-752.
    8. 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.
    9. Eric Girardin & Zhenya Liu, 2003. "The Chinese Stock Market: A Casino with 'Buffer Zones'?," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 1(1), pages 57-70.
    10. Keith Anderson & Chris Brooks, 2006. "The Long-Term Price-Earnings Ratio," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(7-8), pages 1063-1086.
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    Cited by:

    1. Yang, Hu & Yi, Danhui, 2015. "Studies of the adaptive network-constrained linear regression and its application," Computational Statistics & Data Analysis, Elsevier, vol. 92(C), pages 40-52.

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    JEL classification:

    • N2 - Economic History - - Financial Markets and Institutions

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