Asset Price Evolution Model, Theoretical And Empirical Research

Asset price analysis is always the important issue of financial theory innovation and positive research. The study of this paper is mainly around the mechanism of the price evolvement in financial market. We consider that the reaction between traders and asset prices promoting the price evolvement in real financial market, and this evolvement have its tendency. So it is needed to build a market system model to describe the relationship between traders and price of assets.Due to the key issue of this paper, we develop Trader Profit Expect Model and Asset Price System Evolvement Model to describe and simulate the price evolvement process. Related theory analysis and positive study will be used to sustain the idea, and the model will be used to develop new method of price forecasting. There two ways to describe the process of price evolvement in model foundation. In microcosmic way, peoples usually deal with describing the behavior of trader. For example, it is proved that the rationalistic hypothesis is not so tally with the real world by the scholar of behavior finance. There for, classic models have been developed. Kahneman and Tversky developed Prospect Theory in 1979. By now, because those new theories are under the mentality analysis of traders, so it is very difficult to testify those theories by demonstration researches. In macroscopic way, peoples develop artificial simulation models to describe the colony behavior of traders in financial market. Such as BSV, DHS, Unified Theory Model, and Multi-agent Model. By those models, people can simulate the herd behavior of trader in financial market, and also can describe the mechanism of the price evolvement. But those models can't be used in forecasting.In the field of price analysis, forecasting is always the important issue. Peoples have adopted varies kind of math tools to heighten the accuracy of price forecasting model, such as Genetic Algorithms and Artificial Neural Network model and Fuzzy Theory are used in prediction. The wavelet theory and chaos theory are also used in prediction. It should be emphasized that peoples always pay their attention to the accuracy of prediction and don't care about the capability in explaining the micro economy process of forecasting model. For example, when the ANN is used in prediction, people can only know the result of forecasting, but can't get information about the process of pricing. So such a forecasting model will not help people to develop financial theory. It means that financial theory can't get help from mathematic tools in prediction.Those facts are introduced in the part of literature review. It will be the main content of chapter 2. By the way, the reason why the Fractal Market Hypothesis (FMH) is adopted but not Efficient Market Hypothesis (EMH) firstly. Then, the reports about the decision behavior of traders and the models of market system will be introduced and estimated. At the last of this chapter, it will be concluded that the asset price can be predicted in short period due to the chaostheory, and mathematic theory about chaos will be introduced.The main mission of chapter 3 is to study the mechanism of asset price evolvement, develop model to describe the process of asset price evolvement, and to provide new method of price forecast. The trader Profit Prospect Model will be developed to analysis the relationship between traders and price of assets, and Asset Price System Evolvement Model will be developed to describe the process of prices evolvement. Related theory deduction and demonstrations about those two models indicate that those models can tally with the real price evolvement process well, and can get information about the traders and the relationship between traders and price of assets, can also be used to predict the price.The main mission of chapter 4 is to sustain the viewpoint of this paper about price evolvement and its models developed in this paper by positive researching which is mainly about price prediction. By the way, a new method of price prediction is also developed. The key idea of the forecast method is that we should make the most use of information in financial market, and make the forecast model to learn the principle of price evolvement. Then, we can make the model to forecast the future price of asset. Due to the new forecast method, we can forecast a set of prices at same time, and we can also forecast future price of an asset by information of other assets. The can also be used in orbit forecast according with chaos theory. In the part of demonstration research, random sample of 9 stocks are all proved in chaos, and we also prove that except the manipulation stock in slumping, price of most stock in financial market can be forecasted efficiently.In chapter 5, we summarize the paper. Conclusion will talk about issues as follows. Due to the reaction between traders and asset price, this paper develops Trader Profit Prospect Model and Asset Price System Evolvement Model under theories of fractal market hypothesis, behavioral finance and chaos. Duo to those two models, new method of price prediction is developed which can predict several asset price in future. Relative positive examples sustain the issue of this paper about the relationship between traders and asset price. Innovations of this paper are as follows.Firstly, Trader Profit Prospect Model is developed. It is assumption that there is a special relationship about the change of stock price between real world and the prospect of trader, which can be expressed by the S function of logistic curve. The difference between this model and Prospect theory is that this model can be used to determine the characteristic of a kind of trader.Secondly" Asset Price System Evolvement Model is developed in this paper. This model can approach the process of price evolvement. The difference of this model from BSV and DHS is that this model contain subdivision unit of traders, and this model can be used in price prediction. The difference between this model and ANN isthat this model can approach the real process of price evolvement and determine the market construction and the mechanism of price evolvement.Thirdly, new method of price prediction is developed. The larruping characteristic of this model is that it can prediction several asset price in future. During the working of demonstration, it is found that most of price series of 9 stocks have different length of non-periodic cycle in different period of time in according with chaos theory. It means that the principle of price series is in changing along with the evolvement of market system. At the same time, we find that composing of traders with different profit prospect and sensitivity to price changing can reflect the tendency of price evolvement, and can also influence the future price evolvement. In general, on the basis of relative literature, we develop Profit Prospect Model which can be used to determine the composing of trader with different profit prospect, and develop Asset Price System Evolvement Model which can be used to describe the mechanism of the price evolvement in financial market, and develop new forecast method on the basis of those models in according with chaos theory. The relative theory analysis and demonstration research prove that those new models and method are feasible and valuable in real market.