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Opinion

China's stock market is not in a bubble

By Jennifer Carpenter and Robert Whitelaw

Professors Jennifer Carpenter and Robert Whitelaw

This run-up is not a bubble, and so investors should not fear another crash.

The stock market knows more than any individual investor, and China's is no exception.

The launch of deposit insurance, announced in November and to be implemented in the new year, will effectively reduce the implicit government guarantee of China's high-yielding shadow banking wealth-management products.

This prospect makes China's stocks now look cheap by comparison with those products, and investors are bidding them up accordingly. The combined Shanghai and Shenzhen market was one of the world's top performing stock markets in 2014, up more than 40 percent, compared to only a 10-percent gain in the S&P 500, and the vast majority of this outperformance has occurred since the beginning of November.

Read the full article as published in CNBC.

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Jennifer Carpenter is an Associate Professor of Finance. Robert Whitelaw is the Edward C. Johnson 3D Professor of Entrepreneurial Finance and the Chair of the Finance Department.