Booms and busts in China's stock market: estimates based on fundamentals
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.
Volume (Year): 21 (2011)
Issue (Month): 5 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RAFE20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RAFE20|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Steven A. Sharpe, 2001.
"Reexamining stock valuation and inflation: the implications of analysts' earnings forecasts,"
Finance and Economics Discussion Series
2001-32, Board of Governors of the Federal Reserve System (U.S.).
- Steven A. Sharpe, 2002. "Reexamining Stock Valuation and Inflation: The Implications Of Analysts' Earnings Forecasts," The Review of Economics and Statistics, MIT Press, vol. 84(4), pages 632-648, November.
- Koenker, Roger & Bassett, Gilbert, Jr, 1982. "Robust Tests for Heteroscedasticity Based on Regression Quantiles," Econometrica, Econometric Society, vol. 50(1), pages 43-61, January.
- Tarhan Feyzioglu & Nathan Porter & ElÃ¶d TakÃ¡ts, 2009. "Interest Rate Liberalization in China," IMF Working Papers 09/171, International Monetary Fund.
- Michael E. Drew & Tony Naughton & Madhu Veeraraghavan, 2003. "Firm Size, Book-to-Market Equity and Security Returns: Evidence from the Shanghai Stock Exchange," Australian Journal of Management, Australian School of Business, vol. 28(2), pages 119-139, September.
- Zhichao Zhang & Wai Sun & Hua Wang, 2008. "A new perspective on financial anomalies in emerging markets: the case of China," Applied Financial Economics, Taylor & Francis Journals, vol. 18(21), pages 1681-1695.
- Javier Andrés & Óscar Arce & Carlos Thomas, 2010.
"Banking competition, collateral constraints and optimal monetary policy,"
Banco de Espa�a Working Papers
1001, Banco de Espa�a.
- Javier Andrés & Óscar Arce & Carlos Thomas, 2013. "Banking Competition, Collateral Constraints, and Optimal Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(s2), pages 87-125, December.
- Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991.
"Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?,"
Cowles Foundation Discussion Papers
979, Cowles Foundation for Research in Economics, Yale University.
- Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
- Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
- Tom Doan, . "KPSS: RATS procedure to perform KPSS (Kwiatowski, Phillips, Schmidt, and Shin) stationarity test," Statistical Software Components RTS00100, Boston College Department of Economics.
- José Ferreira Machado & João Sousa, 2006. "Identifying asset price booms and busts with quantile regressions," Working Papers w200608, Banco de Portugal, Economics and Research Department.
- 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.
- Kim, Chang-Jin & Morley, James C & Nelson, Charles R, 2004.
"Is There a Positive Relationship between Stock Market Volatility and the Equity Premium?,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 36(3), pages 339-60, June.
- Chang-Jin Kim & James C. Morley & Charles Nelson, 2000. "Is There a Positive Relationship between Stock Market Volatility and the Equity Premium?," Working Papers 0023, University of Washington, Department of Economics.
- Chang-Jin Kim & James C. Morley & Charles Nelson, 2000. "Is There a Positive Relationship between Stock Market Volatility and the Equity Premium?," Discussion Papers in Economics at the University of Washington 0023, Department of Economics at the University of Washington.
- James Laurenceson & Bing Bing Jiang & Kam Ki Tang, . "Share reform and the performance of Chinaï¿½s listed companies," EAERG Discussion Paper Series 1005, School of Economics, University of Queensland, Australia.
- 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.
- Charles, Amélie & Darné, Olivier, 2009.
"The random walk hypothesis for Chinese stock markets: Evidence from variance ratio tests,"
Elsevier, vol. 33(2), pages 117-126, June.
- Amélie Charles & Olivier Darné, 2009. "The random walk hypothesis for Chinese stock markets: Evidence from variance ratio tests," Post-Print hal-00771080, HAL.
- Hong Li, 2007. "International linkages of the Chinese stock exchanges: a multivariate GARCH analysis," Applied Financial Economics, Taylor & Francis Journals, vol. 17(4), pages 285-297.
- Stephen F. Le Roy, 2004. "Rational Exuberance," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 783-804, September.
- Chan, Kam C. & Fung, Hung-Gay & Thapa, Samanta, 2007. "China financial research: A review and synthesis," International Review of Economics & Finance, Elsevier, vol. 16(3), pages 416-428.
- Cheung, Yan-Leung & Jiang, Ping & LIMPAPHAYOM, Piman & Lu, Tong, 2008. "Does corporate governance matter in China?," China Economic Review, Elsevier, vol. 19(3), pages 460-479, September.
- Boucher, Christophe, 2006. "Stock prices-inflation puzzle and the predictability of stock market returns," Economics Letters, Elsevier, vol. 90(2), pages 205-212, February.
- Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
- James G. MacKinnon & Alfred A. Haug & Leo Michelis, 1996.
"Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration,"
1996_07, York University, Department of Economics.
- MacKinnon, James G & Haug, Alfred A & Michelis, Leo, 1999. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 563-77, Sept.-Oct.
- Mackinnon, J.G. & Haug, A.A. & Michelis, L., 1996. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," G.R.E.Q.A.M. 96a09, Universite Aix-Marseille III.
- Newey, Whitney K & Powell, James L, 1987. "Asymmetric Least Squares Estimation and Testing," Econometrica, Econometric Society, vol. 55(4), pages 819-47, July.
- Cheung, Yan-leung & OUYANG, Zhiwei & TAN, Weiqiang, 2009. "How regulatory changes affect IPO underpricing in China," China Economic Review, Elsevier, vol. 20(4), pages 692-702, December.
- Kozluk, Tomasz, 2008. "Global and Regional Links between Stock Markets - the Case of Russia and China," BOFIT Discussion Papers 4/2008, Bank of Finland, Institute for Economies in Transition.
- Burdekin, Richard C.K. & Redfern, Luke, 2009. "Sentiment effects on Chinese share prices and savings deposits: The post-2003 experience," China Economic Review, Elsevier, vol. 20(2), pages 246-261, June.
When requesting a correction, please mention this item's handle: RePEc:taf:apfiec:v:21:y:2011:i:5:p:287-300. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If references are entirely missing, you can add them using this form.