A bubble identification mechanism: Evidence from the Chinese stock market

Abstract

AbstractThis paper provides a bubble date‐stamping mechanism using the agent‐based computational finance method. The key steps of the bubble date‐stamping mechanism are the construction of the simulated financial market, the computation of the characteristic indexes, and the thresholds of the Price Band in the simulated financial market. The present study adopts the mechanism to identify the bubbles of sample stocks in the Chinese stock market from April 2003 to December 2019. The findings show that the bubbles are primarily distributed in 2006–2008, 2009–2012 and 2014–2018, respectively. Furthermore, we analyse the bubble strength and the price fluctuation during the above three periods. In addition to the bubble date‐stamping mechanism, the paper also studies the factors that drive the bubbles in the Chinese stock market from both macro and micro perspectives.