ISSN 0253-2778

CN 34-1054/N

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Impact of asset price bubble on market risk based on quantile regression model

  • 1.

    School of Management, University of Science and Technology of China, Hefei 230026, China

  • 2.

    Institute of Finance, Development Research Center of the State Council, Beijing 100010, China

Cite this:
https://doi.org/10.3969/j.issn.0253-2778.2014.12.010
  • Received Date: 24 June 2013
  • Accepted Date: 15 October 2013
  • Rev Recd Date: 15 October 2013
  • Publish Date: 30 December 2014
    Abstract

  • Abstract

    Asset price bubble is the deviation of price from the fundamental values. The existence of a bubble changes investors expectations, boosts asset prices and causes investors to underestimate risk, and endangers the stability of market operation. Here, the bubble of Shanghai and Shenzhen stock market was measured, and the impact of bubbles on market risk based on quantile regression model was studied. The results show that market risk is correlated with bubbles; the larger the bubble, the greater the risk, and the greater its impacts on long-term risk than on short-term risk. Both short-term bubble and long-term bubble affect market risk: while in the short term, a bubble boosts asset prices and reduces risk; while in the long term, the probability of a bubbles collapse increases, thus increasing market risk.

    Abstract

    Asset price bubble is the deviation of price from the fundamental values. The existence of a bubble changes investors expectations, boosts asset prices and causes investors to underestimate risk, and endangers the stability of market operation. Here, the bubble of Shanghai and Shenzhen stock market was measured, and the impact of bubbles on market risk based on quantile regression model was studied. The results show that market risk is correlated with bubbles; the larger the bubble, the greater the risk, and the greater its impacts on long-term risk than on short-term risk. Both short-term bubble and long-term bubble affect market risk: while in the short term, a bubble boosts asset prices and reduces risk; while in the long term, the probability of a bubbles collapse increases, thus increasing market risk.
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    • References(15)
  • [1]
    Blanchard O J. Speculative bubbles, crashes and rational expectations[J]. Economics Letters, 1979, 3(4): 387-389.
    [2]
    Blanchard O J, Watson M W. Bubbles, rational expectations and financial markets[R]. Cambridge, MA: National Bureau of Economic Research, 1982: NBER Working Paper No. 945.
    [3]
    De Long J D, Shleifer A, Summers L H, et al. Noise trader risk in financial markets[J]. Journal of Political Economy, 1990, 98: 703-738.
    [4]
    Lux T. Herd behaviour, bubbles and crashes[J]. The Economic Journal, 1995, 105(431): 881-896.
    [5]
    Rosser J B. From Catastrophe to Chaos: A General Theory of Economic Discontinuities[M]. Norwell, MA: Kluwer Academic Publishers, 2000.
    [6]
    Ohlson J. Earnings, book values, and dividends in equity valuation[J]. Contemporary Accounting Research, 1995, 11(2): 661-687.
    [7]
    Koenker R, Bassett G Jr. Regression quantiles[J]. Econometrica, 1978, 46(1): 33-50.
    [8]
    Engle R F, Manganelli S. CAViaR: Conditional autoregressive value at risk by regression quantiles[J]. Journal of Business & Economic Statistics, 2004, 22(4): 367-381.
    [9]
    Xiao Z, Koenker R. Conditional quantile estimation for generalized autoregressive conditional heteroscedasticity models[J]. Journal of the American Statistical Association, 2009, 104(488): 1 696-1 712.
    [10]
    Schaumburg J. Predicting extreme value at risk: Nonparametric quantile regression with refinements from extreme value theory[J]. Computational Statistics & Data Analysis, 2012, 56(12): 4 081-4 096.
    [11]
    Kupiec P. Techniques for verifying the accuracy of risk measurement models[J]. The Journal of Derivatives, 1995, 3(2):73-84.
    [12]
    Wong M. Market BuVaR: A countercyclical risk metric[J]. Journal of Risk Management in Financial Institutions, 2011, 4(4): 419-432.
    [13]
    Liu Huangsong. The theory of the stock intrinsic value and the bubble of Chinas stock market[J]. Economic Research Journal, 2005(2):45-53.
    刘熀松.股票内在投资价值理论与中国股市泡沫问题[J].经济研究，2005(2):45-53.
    [14]
    Xu Ainong. A study on bubbles measurement and bubbles rationality in Chinas stock market[J]. The Theory and Practice of Finance and Economics, 2007, 28(145):34-39.
    徐爱农.中国股票市场泡沫测度及其合理性研究[J].财经理论与实践，2007, 28(145):34-39.
    [15]
    毛有碧，周军.股市泡沫测量及性质区分[J]. 金融研究，2007(12): 186-197.
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    [1]
    Blanchard O J. Speculative bubbles, crashes and rational expectations[J]. Economics Letters, 1979, 3(4): 387-389.
    [2]
    Blanchard O J, Watson M W. Bubbles, rational expectations and financial markets[R]. Cambridge, MA: National Bureau of Economic Research, 1982: NBER Working Paper No. 945.
    [3]
    De Long J D, Shleifer A, Summers L H, et al. Noise trader risk in financial markets[J]. Journal of Political Economy, 1990, 98: 703-738.
    [4]
    Lux T. Herd behaviour, bubbles and crashes[J]. The Economic Journal, 1995, 105(431): 881-896.
    [5]
    Rosser J B. From Catastrophe to Chaos: A General Theory of Economic Discontinuities[M]. Norwell, MA: Kluwer Academic Publishers, 2000.
    [6]
    Ohlson J. Earnings, book values, and dividends in equity valuation[J]. Contemporary Accounting Research, 1995, 11(2): 661-687.
    [7]
    Koenker R, Bassett G Jr. Regression quantiles[J]. Econometrica, 1978, 46(1): 33-50.
    [8]
    Engle R F, Manganelli S. CAViaR: Conditional autoregressive value at risk by regression quantiles[J]. Journal of Business & Economic Statistics, 2004, 22(4): 367-381.
    [9]
    Xiao Z, Koenker R. Conditional quantile estimation for generalized autoregressive conditional heteroscedasticity models[J]. Journal of the American Statistical Association, 2009, 104(488): 1 696-1 712.
    [10]
    Schaumburg J. Predicting extreme value at risk: Nonparametric quantile regression with refinements from extreme value theory[J]. Computational Statistics & Data Analysis, 2012, 56(12): 4 081-4 096.
    [11]
    Kupiec P. Techniques for verifying the accuracy of risk measurement models[J]. The Journal of Derivatives, 1995, 3(2):73-84.
    [12]
    Wong M. Market BuVaR: A countercyclical risk metric[J]. Journal of Risk Management in Financial Institutions, 2011, 4(4): 419-432.
    [13]
    Liu Huangsong. The theory of the stock intrinsic value and the bubble of Chinas stock market[J]. Economic Research Journal, 2005(2):45-53.
    刘熀松.股票内在投资价值理论与中国股市泡沫问题[J].经济研究，2005(2):45-53.
    [14]
    Xu Ainong. A study on bubbles measurement and bubbles rationality in Chinas stock market[J]. The Theory and Practice of Finance and Economics, 2007, 28(145):34-39.
    徐爱农.中国股票市场泡沫测度及其合理性研究[J].财经理论与实践，2007, 28(145):34-39.
    [15]
    毛有碧，周军.股市泡沫测量及性质区分[J]. 金融研究，2007(12): 186-197.
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