The 2015 Stock Panic of China: A Narrative
14 Pages Posted: 17 Jun 2016 Last revised: 22 Jul 2018
Date Written: June 14, 2016
This essay documents the boom and bust of the Chinese A-share bubble in 2014-2015. The short-lived bull market started with the expectation of the state sector reform, capital market opening-up, and monetary easing. It was then fueled and heated by the flooding of new investors and the runaway leverage. The regulatory bodies failed to check the leverage in the early stage. Forceful crackdown on leverage, which came too late, finally tipped the market toward a violent crash. The 10% daily trading limits and the voluntary suspension of trading exacerbated the illiquidity problem during the crash. We also document the government responses to the crash and discuss how China may strengthen its financial system.
Keywords: A-share, bubble, leverage, China
JEL Classification: G14, N25, O53
Suggested Citation: Suggested Citation