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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.

Suggested Citation

  • Gabe de Bondt & Tuomas Peltonen & Daniel Santabarbara, 2011. "Booms and busts in China's stock market: estimates based on fundamentals," Applied Financial Economics, Taylor & Francis Journals, vol. 21(5), pages 287-300.
  • Handle: RePEc:taf:apfiec:v:21:y:2011:i:5:p:287-300
    DOI: 10.1080/09603107.2010.530218
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    Cited by:

    1. Pengguo Wang & Wei Huang, 2015. "The implied growth rates and country risk premium: evidence from Chinese stock markets," Review of Quantitative Finance and Accounting, Springer, vol. 45(3), pages 641-663, October.
    2. Beltratti, Andrea & Bortolotti, Bernardo & Caccavaio, Marianna, 2016. "Stock market efficiency in China: Evidence from the split-share reform," The Quarterly Review of Economics and Finance, Elsevier, vol. 60(C), pages 125-137.
    3. Hui Hong & Fergal O'Brien & James Ryan, 2014. "Inflation And The Subsequent Timing Of The Chinese Stock Market," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 10(2), pages 13-35.
    4. 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.
    5. Nguyen, Vu Hong Thai & Boateng, Agyenim, 2015. "Bank excess reserves in emerging economies: A critical review and research agenda," International Review of Financial Analysis, Elsevier, vol. 39(C), pages 158-166.
    6. 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.

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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