How do we face the stock market bubble

 How do we face the world economy, the stock market bubble
Institute of Fudan University, Hua Min
recent years, almost all stock markets around the world boom of the phenomenon emerged, of which China and India emerging market economies The most striking increase, so a wide range of the stock market bubble and subsequent collapse of the bird. However, in our view, be accused of blindly on the market is not justified, of course,Bailey UGG boots, is useless, because the market has its own development of logic, so the bubble after the election should be how to face what the problem is the key. of course, to find the right way to control the stock market bubble, we first need to figure out the formation mechanism of the stock market bubble and its implications.
from the international experience, the stock market bubble, mostly because of market demand than supply, leading to price a serious departure from the fundamentals of economic fundamentals or the company resulting from rapid increases. If such a definition is acceptable, then went on to answer The question is: over-expansion foam that led to excess demand is about? this, we can generally be analyzed as follows: first, because of excess liquidity and the formation of passive buying; second, because optimistic about the future arising from the initiative is expected to bid.
excess liquidity will have the risk of inflation, in this case holding currency or money in the bank will continue to bring the value of the loss of cash, in order to avoid this risk, people with savings or to preserve and increase idle funds for the purchase of various assets or the value of rational choice, then the cash value for the prevention of impairment and passive to buy stocks and other financial assets of the tendency of excess liquidity, and therefore the case of generating inflation expectations is the inevitable.
buying if passive holding of monetary assets in order to avoid possible loss of value,UGGs, then the initiative of the buying is based on the expected high-yield equity investments . This is expected in mature market economies is based on the major technological innovations brought about by the growth of corporate profits; in emerging market economies are largely based on the rapid economic growth; but in today's China is mainly related to the structure of the stock market reform related. Since 2005 the share reform to the governance structure of Chinese listed companies have a fundamental change, leading to Chinese investors for the future development of China's stock market, the good expectations. Thus, the excess liquidity generated by the share reform and the expected these two factors to the good together, giving rise to a surge in China's stock market price of the situation, passive and initiative flocking buying, making a prolonged slump in China's stock market weakness and showing a change of rapid growth potential, the results will follow the stock market bubble.
now need to further discuss the issue is what does it mean the stock market bubble? bubble is above all a risk, because the foam means that the stock price and company fundamentals or departure from the fundamentals of the economy, improving fundamentals, if the stock price increase can not keep up, then the stock market crash, and the subsequent economic fluctuations are likely to occur.
Secondly, according to Tobin's Q theory, if the business re- replacement cost the same, it means that share price decline in the cost of business investment. Thus, if the stock price by buying Tuishang Qu initiative, then this means that market investors on the company, industry, and the whole macro-economic growth generated optimistic expectations, share prices rose too fast when the bubble is actually caused by a requirement to invest in entrepreneurs in the signal. In this case, if the price is too high for the company's entrepreneurs to increase investments through effective corporate profits, then this foam is created by profits to be eliminated. From this sense, in anticipation of the stock market bubble caused optimism is not all bad.
according to the analysis of these two aspects We can see that need for proper understanding of the stock market bubble, it could mean the arrival of the risk could also mean the arrival of investment opportunities, it may be a risk of both signals, it may be an investment signal.
Youle above understanding, we can go further to talking about the stockmarket bubble after the governance issues. If China, as it is today, both excess liquidity on the stock market have optimistic expectations,UGG boots cheap, so simple to carry out demand management can not control the stock market bubble of the potential, we may even need to create supply. mentioned here include the following supplies to create at least two meanings:
First, if the problem of excess liquidity in the short term not change, then to control its liquidity, limit capital inflows into the stock market,UGG shoes, not as to broaden the investment channels, increased investment is more desirable species. To do this we need to relax government control, because any type of financial innovation in the others is a kind of market behavior, rather than government action. If the market by the government to create a high-risk financial investment products, the government needs to do to take risks. but as long as the risk of a variety of venture capital is borne by the government, then will certainly have a so-called accumulation. So it seems more reasonable approach should be to loosen up the market for financial innovation, investors bear the investment risk of their portfolio. and only when the government actually pulled out of the market, the government can just take on responsibilities of market regulation, market the risk of possible means of effective government supervision and control.
Second, as we noted in the previous analysis, as optimistic as a result of the initiative is expected to stock investment, in fact, a kinds of investment signals, this signal is a useful information, need to fully take advantage of the market, rather than at random to be checked. For this initiative and investment caused by the stock market bubble, the only way to be eliminated, and that is deepening the corporate governance senior management compensation structure and system reform, with the equity incentive approach to encourage more entrepreneurs to actively carry out to increase company profits, investment and innovation activities, in order to fill in the blank (remove) the purpose of the bubble. Should not the case , then this will be fleeting useful information, enabling companies lost investment opportunities, economic growth in the space lost.
clear from today's China, because everything is still in development, so the stock market Foam is not a bad thing, as long as we handled properly, the stock market bubble would be able to stimulate the market reform, financial innovation and corporate governance reform. If this view is justified, then the current policy may need some adjustments, that is, demand management (control)-based supply management policies into the policy-oriented and innovation.