Antibubble and Prediction of China's stock market and Real-Estate

Details Antibubble and Prediction of China's stock market and Real-Estate Antibubble and Prediction of China's stock market and Real-Estate

2003-12-05

arxiv.org/abs/cond-mat/0312149v1

Physica A 337 (2004) 243-268

Physics

Condensed Matter

Statistical Mechanics

29 Elsevier Latex pages including 12 eps figures

Scientific paper

10.1016/j.physa.2004.01.051

We document a well-developed log-periodic power-law antibubble in China's stock market, which started in August 2001. We argue that the current stock market antibubble is sustained by a contemporary active unsustainable real-estate bubble in China. The characteristic parameters of the antibubble have exhibited remarkable stability over one year (Oct. 2002-Oct. 2003). Many tests, including predictability over different horizons and time periods, confirm the high significance of the antibubble detection. We predict that the Chinese stock market will stop its negative trend around the end of 2003 and start going up, appreciating by at least 25% in the following 6 months. Notwithstanding the immature nature of the Chinese equity market and the strong influence of government policy, we have found maybe even stronger imprints of herding than in other mature markets. This is maybe due indeed to the immaturity of the Chinese market which seems to attract short-term investors more interested in fast gains than in long-term investments, thus promoting speculative herding.

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