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Understanding the Chinese stock market: international comparison and policy implications

Liu, Z. and Wang, S. (2017) Understanding the Chinese stock market: international comparison and policy implications. Economic and Political Studies, 5 (4). pp. 441-455. ISSN 2095-4816

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To link to this item DOI: 10.1080/20954816.2017.1384616

Abstract/Summary

The definitions of the bear, sidewalk and bull markets are ambiguous in the existing literature. This makes it difficult for practitioners to distinguish between different market conditions. In this paper, we propose statistical definitions of the bear, sidewalk and bull markets, which correspond to the three states in our hidden semi-Markov model. We apply this analysis to the daily returns of the Chinese stock market and seven developed markets. Using the Viterbi algorithm to globally decode the most likely sequence of the market conditions, we systematically find the precise timing of the bear, sidewalk and bull markets for all the eight markets. Through the comparison of the estimation and decoding results, many unique characteristics of the Chinese stock market are revealed, such as ‘crazy bull’, ‘frequent and quick bear’ and ‘no buffer zone’. In China, the bull market is more volatile than in developed markets, the bear market occurs more frequently than in developed markets, and the sidewalk market has not functioned as a buffer zone since 2005. Possible causes of these unique characteristics are also discussed and implications for policy-making are suggested.

Item Type:Article
Refereed:Yes
Divisions:Faculty of Arts, Humanities and Social Science > School of Politics, Economics and International Relations > Economics
ID Code:79667
Publisher:Taylor & Francis

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