What Can We Learn From the Chinese Stock Market Crash?
— August 5, 2015
By Jennifer Carpenter and Robert Whitelaw
The well-worn saw that those who forget history are doomed to repeat it applies to stock market bubbles and crashes, too. China desperately needs to avoid a repeat of the past few months. Of equal or even greater importance, the heavy-handed government intervention in the market has generated widespread concerns about China’s commitment to financial reform more generally. To both allay these concerns and prevent another similar episode, Chinese regulators will have to make an even greater commitment to reforms and capital account liberalization.
To understand the need for this commitment, we need to appreciate the causes of the run-up and subsequent meltdown. In hindsight, there were two key issues: a narrow investor base subject to dramatic swings in sentiment and set of market regulations and structures that exacerbated the worst tendencies of these investors.
Read the full article as published in Foreign Policy.
Jennifer Carpenter is an Associate Professor of Finance. Robert Whitelaw is the Edward C. Johnson 3D Professor of Entrepreneurial Finance.