The A - share market price distortion test based on fundamental value and sentiment

Abstract

The phenomenon of the distortion of stock price is an important source of the risk in the capital market. The paper investigates the distortion of stock market based on fundamental value indicators and principal component analysis respectively, and the results show that the bubble index derived from Tobin Q value and bubble coefficient clearly reveals the degree of distortion and excessive volatility of stock market in China. Using a combination of principal component analysis and Kalman filter algorithm to extract and filter principal components including fundamental value indicators and sentiment index, the stock market bubble index is constructed. And the conclusion that China's stock market has experienced a total of four bubble periods in 2007, 2009-2010, 2014-2015 and late 2017 is obtained. And the index shows that the degree of bubble in China's stock market from 2014 to 2015 is higher than that from 2006 to 2007, revealing the actual situation that the A-share bull market from 2014 to 2015 is a leveraged bull and detached from fundamental support, which provides empirical support for scientific determination of regulatory efforts.