Analysis of China’s Noise Trader Market
More investors prefer to indirectly participate in the current Chinese financial market through financial intermediaries along with the development of China’s financial market. However, the risk transference 代写留学生论文tendency risk originated from financial intermediaries may easily cause the balanced prices of risky assets deviate from its fundamental value, which forms the price bubbles. The long existence of noise traders and financial investment intermediation further causes asset bubbles, and, finally, caused the catastrophic financial crisis occurred in Wall Street. Even under the stable environment, the internal contradictions due to the self-development of financial market caused the financial crisis.
The matured theory of international financial crisis, among which the representative model from the aspect of international payment crisis, exchange rate crisis and multiple equilibrium, gradually develops after the 1970s. The initiators are Paul R. Kmgman, Robert P. Flood, Peter M. Gather and Mauriee Obsffeld, etc. However, these models mentioned above, no matter belongs to 1st generation crisis model initiated by Paul Krugman, Robert P. Flood and Peter N. Garber or 2nd generation crisis model initiated by Maurice. Obstfeld, Gerardo Esquivel, Felipe Larrain, the main content focuses on the outcome of financial crisis caused by the in-coordination of macroscopic economic policy, exchange rate system, etc. The analysis focal point was concentrated in microscopic layer until the birth of 3rd generation crisis model. Therefore, seen from the development trace of these three crisis generations, the significant advance of global financial crisis just originate from the ever in-depth research from macroscopic layer to microscopic layer. In this paper, the author will adopt the concept of noise trader in Behavior Finance and the asset bubbles caused by financial investment intermediation, further analyze the financial crisis through Evolutionary Stable Strategy from import stable balance to unveil the microscopic foundation of the occurrence of financial crisis.
The relationship between Noise Trader and Financial Investment Intermediation
More investors prefer to indirectly participate in the current Chinese financial market through financial intermediaries along with the development of China’s financial market, the above behavior is also renowned as financial investment intermediation. However, the risk shifting problem caused by internal agency investment makes financial intermediaries share the profit from the increase of asset prices while ignoring the risk of asset price decrease. They may transfer the risk to investors through the application of bankruptcy protection when the asset price decreases. Ahen Gary (1993) found that, if a considerable part of the investment decision-makers belongs to agent in the financial market, the incentive from risk transference may cause the balanced price of risky asset surpass its original basic value, which, in addition, lead to the formation of asset bubbles. Typically, served as rational investors, the procedure of accurate prediction of asset bubble shall be rather difficult while encountering a number of uncertainties which keeps changing. Therefore, once most financial institutions fall into irrational expectations due to bubble “hallucination”, in most consequences, more tendency of opportunism and “aggressive” shall be displayed, thus the price of risky asset gradually increases and the broad profit making ability could be created via ventured transaction, which further strengthens the irrational expectations of financial intermediaries. Under the above market development status, the investment profit of risky asset may be overestimated and the asset price sees its continuous growth, during that process, the asset bubble becomes rather severe. Therefore, seen from what has been concluded above, if noise traders belongs to investors of irrational expectations, the irrational behavior of noise traders and the formation and expansion of asset bubbles has fairy obvious relationships, thus the outcome of global financial crisis could be explained. In the following chapters, the author shall take use of the eagle-pigeon model to analyze the real reason of financial crisis.
Conclusion:
According to the above analysis, we could easily know that, although China’s economy shows stable and healthy, financial crisis may also occur due to the weakness of financial market itself. Knowing this point, better way may be adopted for the future healthy development of China’s financial market. At present, China has been undergoing the era of rapid economy development and systematic reformation, thus the development of financial market itself may be faster than the development of financial regulation system, which may inevitably cause a large number of financial institutions control the market. As the power of those financial institutions was in different levels, they lacks the market control experience and rational analysis method, which may easily cause much irrational investment behaviors. During /the early stage of financial market development, the institutional investors were relatively little due to unopened financial market, thus the number and degree of irrational investment behavior was small. Although the asset bubble formatted, they were small in scale and received little economy impact, thus the opportunity of financial crisis occurrence was fairly small, namely, the crisis was in the hidden stage. However, along with the gradual development and expansion of the financial market, the financial regulation system was unable to get the corresponding development while the venture behavior and asset bubble becomes rather worse. Therefore, if the asset bubble develops to a certain stage along with the increasing noise trader and asset bubbles, the financial crisis shall come into shape when those bubble cracks.
In recent years, China is in a period of economic transition, the complete opening of current account and weak control of capital regulation already causes rather instable market expectations and complicated investment factors, especially in recent days, the value of RMB keeps increasing and much international "hot money" overseas flows into the Chinese capital market, the financial crisis may be easily caused due to irrational investment behaviors. Therefore, seen from the layer of policy, the government shall increase the internal financial system and make it be more mature and perfect, 代写留学生论文strengthen the policy transparency, stabilize the expectation of investors via continuous market regulations. In another facet, the construction of regulation system shall be built in-depth and the over-ventured behavior shall be banned via the avoidance of unqualified institutions. Under the condition of sufficient cash flow, the market will be developed under fairly safe ventured environment.