FEEDBACK TRADING, DELAYED ARBITRAGE, AND ASSET PRICE BUBBLES: THEORETICAL AND EMPIRICAL STUDIES BASED ON DIFFERENT CYCLES

The 20th CPC National Congress emphasized that financial security is the cornerstone of national security, and preventing asset price bubbles is the core task of financial market risk prevention and control. China's stock market has developed rapidly, but it is characterized by frequent price fluctuations, and the deviation of prices caused by irrational investor behavior and arbitrage restrictions is prominent. Existing research mostly focuses on the theoretical level and lacks empirical analysis targeting the Chinese market. Moreover, the inverse relationship between investor sentiment and stock returns contradicts the reality of the weak presence of rational traders in China's market. This paper, from the perspective of behavioral finance, combines feedback trading and delayed arbitrage theory to construct an investor sentiment index based on principal component analysis and explores its dynamic relationship with the formation of stock price bubbles in China. Through empirical tests across multiple cycles, it reveals the mechanism by which arbitrage restrictions affect the persistence of bubbles and explains the "reverse induction puzzle," providing theoretical support and policy insights for improving China's stock market risk prevention and control system.