Sun, Lin. 2011. The
Greater Fools Theory And The Bubbles In Chinese Stock Market: A Behavioral
Approach. Doctoral Dissertation, Cornell University.
The Chinese Stock Market
encountered its largest bubble from early 2006 to late 2007, and then crashed
to the ground in mid 2008. On contrary to the bubbles in developed countries,
the sky-rocketing phenomenon of the Chinese stock index in a very short period
could not be fully explained by the rational bubble theory. In this paper, I
examine both theoretically and empirically the "Greater Fools
Theory", in the scope of irrational bubble theory. The result suggests
that the Greater Fools Theory should be credited for this bubble in China. The
theory part of this thesis presents an intuitive mathematical model to show the
consistency of Greater Fools Theory to agents' behavior in reality. The
empirical part of this paper adopts a traditional factor pricing model, the APT
model, to show the explanation power of greater fools proxies.
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