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Do speculative bubbles migrate in the Chinese stock market?


In this paper, a duration dependence test for speculative bubbles in the Chinese stock market is developed. It is found that bubbles in the aggregate stock price existed before the split share reform. After the reform, we observe the phenomenon of bubble migration across industries. In particular, bubbles migrate from the telecommunications industry to the health care industry. Moreover, we find that monetary policy used to have a significant impact on the bubble size before the reform but the impact diminished after the reform.

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  1. 1.

    The China Securities Index (CSI) Company Limited is a joint venture between the Shanghai Stock Exchanges and the Shenzhen Stock Exchange. It provides the creation and management of indices and index-related services. To measure the stock performance of different industries, the company launched 10 industry indices on January 4, 2002.

  2. 2.

    To offset adverse global economic conditions, the Chinese government launched a CNY 4-trillion stimulus plan on November 9, 2008, to boost domestic demand by providing extra liquidity.

  3. 3.

    In unreported results, we conduct an ARCH test and find conditional heteroscedasticity in weekly stock return series.

  4. 4.

    We obtain similar results by using a GARCH-in-mean model with lag returns up to three orders.

  5. 5.

    Engle and Lee (1999) show that under mild assumptions, the variance equation of model (4) can be rewritten as an equation with five coefficients, which identifies the five underlying parameters.

  6. 6.

    The monthly CPI is converted into weekly inflation rates by solving the weekly inflation rate such that the weekly price index grows smoothly and at the same rate between subsequent values of the monthly CPI.

  7. 7.

    It should be noted that in Eq. (3) refers to population probability, whereas the h(i) refers to the sample probability used in the likelihood tests.

  8. 8.

    We also use the repo rate as alternative measure of risk-free interest rate. It turns out that our results remain qualitatively unchanged.

  9. 9.

    We also repeat various specifications of duration dependence tests on industry level and subsample period (pre-reform vs. post-reform). Our results remain qualitatively unchanged. For brevity, these results are not reported, but available upon request.


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Corresponding author

Correspondence to Terence Tai-Leung Chong.

Additional information

This research is supported by the MOE Project of Key Research Institute of Humanities and Social Sciences at Universities (16JJD790056), National Natural Science Foundation of China (71402181), and Fundamental Research Funds for the Central Universities, and the Research Funds of Renmin University of China (13XNJ003). All remaining errors are ours.

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He, Q., Qian, Z., Fei, Z. et al. Do speculative bubbles migrate in the Chinese stock market?. Empir Econ 56, 735–754 (2019).

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  • Survival analysis
  • Speculative bubbles
  • Non-tradable shares reform

JEL Classification

  • G12