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Explosive behavior in the Chinese stock market: A sectoral analysis

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  • Yang, Hui
  • Ferrer, Román

Abstract

This paper examines the existence of explosiveness in the Chinese stock market from a sectoral perspective. To that end, the method recently developed by Phillips and Shi (2019), which is an extension of the standard bubble detection technique of Phillips et al. (2015a,b), is used. The empirical results reveal the presence of several explosivity periods in all equity sectors and the aggregate equity market, showing the high propensity of the Chinese stock market to the appearance of episodes of explosiveness. One possible explanation for this frequent explosive dynamics stems from the fact that the Chinese equity market has numerous unique features and is still in an early stage of development. The two main periods of explosiveness common to many Chinese equity sectors correspond to the well-known 2007 and 2015 Chinese stock market bubbles. However, there seems to be some heterogeneity across sectors in terms of the number and duration of explosivity episodes. Furthermore, the significant degree of co-movement of periods of explosiveness in different equity sectors suggests potential contagion effects of explosive dynamics to the whole Chinese equity market, with the consequent detrimental impact on the Chinese real economy.

Suggested Citation

  • Yang, Hui & Ferrer, Román, 2023. "Explosive behavior in the Chinese stock market: A sectoral analysis," Pacific-Basin Finance Journal, Elsevier, vol. 81(C).
    • Handle: RePEc:eee:pacfin:v:81:y:2023:i:c:s0927538x23001750
    DOI: 10.1016/j.pacfin.2023.102104
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    More about this item

    Keywords

    Explosive behavior; Bubbles; Stock prices; Chinese stock market; Sectoral analysis;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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