The Ananlysis And Applications Of Adaptive Markets Hypothesis In China Stock Market

Lots of scholars have researched and argued the efficient market hypothesis (EMH) after it was proposed in 1970, and the EMH have become the cornerstone of financial study because of its preciseness, most of financial theory are based on the efficient market hypothesis. But since 1980s, scholars discovered some anomalies which can’t be explained by the EMH, so people realized that the EMH is not absolutely right. Based on this, the academia began to appear on the EMH, and tried to explain these anomalies in many ways, such as financial noise-trade theory, fractal market hypothesis and coherent market hypothesis et al. But so far, no theories can challenge EMH except behavioral finance. However, behavioral finance can’t become the core theory of finance despite it close to reality, because it has not been able to form a unique and complete theoretic system.And on this basis we draw lessons from Lo(2002、2004) and Farmer(1999、2002) who introduced the idea of Darwin’s biological evolution theory in finance based on the conflicts and arguments between EMH and behavioral finance, and research the adaptive markets hypothesis(AMH) in financial from the perspectives of adaptive evolution. The AMH admits the analysis model and the rationality premise of the EMH, and emphasizes the rationality is a relative rationality that relates to the external environment. The behavior of the participants will be irrational due to the change of environment, but the irrationality will disappear because it adapt to the environment gradually. The main contents of the thesis are as follows:1. Combe the content of efficient market hypothesis and the behavioral finance, and analyze the similarities and differences between them. Meanwhile we collect related application research of biological theory of evolution in the financial market. According to the introduction of adaptability to the efficient market hypothesis, we put forward the concept of adaptability market efficient and its meaning and properties. Then we compare the above theories, understand the integration of adaptive markets hypothesis, and expound its rationality and advantage in financial research.2. Empirical analysis of the irrationality anomalies of Chinese stock market. The existence of these irrational phenomenons causes a challenge to the efficient market hypothesis, which is also the significance of the generating the adaptive markets hypothesis. From the analysis of irrational market indicators, we find that there are irrational behaviors in Chinese stock market because of the high stock turnover rates, because there are lots of speculative froth, and investors are more inclined to short-term operation according to their own subjective judgment, the irrational phenomenon exists in Chinese stock market at present. In addition, empirical analysis of the shock abnormal phenomenon such as risk aversion, new speculation and price volatility caused by factors such as culture, and emphasized on the research, and the influence of words preference with Chinese characteristic is also explored.The conclusion shows that Chinese stock investors are not fully risk aversion, and the attitude of investors is changing with the investment environment. The risk aversion that emphasize by efficient market hypothesis is only applicable to investors with profit, and investors show highly risk tolerance with losses, namely the characteristics of risk preference. There is new speculation phenomenon in stock market. The high initial income largely due to the price of IPO is serious overvalued, and there is irrational blindly worship in trading markets. Statistical analysis and regression analysis confirm that the words can really affect investing psychology of investors in Chinese stock market, and the lucky words stocks are high prices and yields.3. Based on defining the concept of adaptive markets hypothesis and determine the test criterion, empirical analyze the adaptability characteristics of the market according to the actual situation of China’s stock market. Using automatic mixing inspection, modified R/S model and the LW model et al. to test the market effectiveness, we discuss the uncertainty of efficient market, and analyze its development and changes of characteristics. Then we use the mean GARCH class model (IGARCH-M, GJR-M, APARCH-M) which have different priorities to verify the existence and time-variable of the relationship between stock market returns and risk. We combine financial ecological environment indexes such as economic, social, cultural and natural environment to evaluate the influence of market conditions change on stock market prices, returns and volatility. The results confirm that the Chinese market is stressed by the adaptive characteristics.4. Construct AMH-GARCH class stock market volatility model based on the process of ARFIMA according to the theory of adaptability to the market. At the same time, we discuss the long-term and short-term memory of stock returns between earnings and the tail dependence and its time-varying characteristics between return and stock market "ecological environment", and estimate and forecasting the volatility, take a full account of the skewness, high kurtosis and fat tail. We compare traditional volatility model and AMH-GARCH model from the economic explanation capacity, goodness-of-fit and forecast precision. And we can comprehensively use various methods to compare estimate effect and forecast precision in order to get a objective result, such as standard statistical loss function and Diebold -- Mariano inspection, etc.5. Based on the results of the volatility model, we construct risk index in adaptive market, and establish an early warning system for the stock market according to the risk value in order to prompt the risk. At the same time, according to the coverage of estimated value to actual data, we measure the effectiveness and stability of the new risk index.6. Introduce dynamic coefficient of risk aversion to hedging model, which can reflect investors’ cognition towards risks and benefits are changing during the process of adaption to investment condition, So this research embodies the thought of adaptive markets hypothesis, and it is also a breakthrough from minimum risk to utility maximization which emphasizes both risks and returns. The empirical analysis using stock index futures to hedge shows that, compared with the conventional hedge strategy under the risk minimization criterion, utility maximization hedge strategy can bring more benefits to investors, and improve the comprehensive utility of market participants.