China's Stock Market Risk Assessment Model And Simulation Study

Capital market is a non-linear, uncertainty, dynamic, complex giant system. Especially in China's stock market, the emerging capital market is still immature. Its uncertainty risk is increasing significantly with the rapid economic development, economic activities become increasingly international, and the increasing diversity of financial derivatives.Especially in the face of the current global financial crisis and the severe economic situation at home and abroad, and its impact on the stock market has been inevitable. How to reduce the influence of this impact is an important task to the capital market regulator of many countries, in which, an effective market risk management and control is of its core and ultimate objective. But first of all the question to resolve is: How to assess the risk of stock market; What are the factors to impact on market risk; How do these factors impact the market iluctuation; and what extent it impact on market risk. All these are questions that market regulators need to study and solve.For above-mentioned problems, this paper starts from the objectives that influence actual stock market directly, and based on behavioral finance theory, the object-oriented thinking, to carry out systematic analysis about the impact factors of China's stock market. This paper carry out the definition of a investment index of technology trends, the investment index of basic value, investor confidence index, and market maturity index. Which according to the investment philosophy and investment psychology, stock market investors will be divided into the basic values-based individual investors and technology trends-based individual investors, noise-based individual investors, stability institutional investors and radical institutional investors.This paper holds that the investment behavior of investors is the ultimate decision on three main elements: investment confidence, investment philosophy, investment funds. By the three major elements , investors will make a specific investment behavior, this is also the directly impact factors to the fluctuant risk in stock market.Based on experimental economics and artificial intelligence-related theory, this paper makes the use of integrated back-propagation neural network to simulate the investment mains in China stock market, and trains the neural network subsystem in line with the characteristics of their behavior. This paper based on the model of risk evaluation model about stock market, makes use of the corresponding computer simulation technology to establish simulation environment about the stock market fluctuation. In the end, this paper makes use of historical data of Chinese stock market to assess simulation model. On this basis, this paper carried out on simulation forecasting and initial discussion about China's stock market fluctuation. The simulation model can be used as the simulation reference for short-term prediction of fluctuation risk in stock market.From the view of the provision of market liquidity and stability of the market, this paper holds that: A sound stock market need to have different types of investors, the investment structure at different levels so as to constitute a complete and normal circulation system of capital, thus forming a healthful securities ecosystem. As for the traditional economic theory, we should look at the conditions and scope of its application dialectically. Based on related simulation data, this paper carried out theoretical study and simulation analysis on the represent impact factors of the China's stock market risk. In this paper, selected two represent factors closely related to the Government regulation (the proportion of investors and the benchmark interest rate level), conducted a study, and the research conclusions are following:1. This paper believes that the enhance of interest rate will inhibit on the upward trend of the overall stock market in a certain degree, and make more lower level of stock prices. Although the actual reaction of the stock market may not comply with such laws, so as some scholars have put forward a number of different views, but this article holds that the traditional economic theory in this area is full of theoretical basis, and analysis is reasonable.2. This paper believes the rise in interest rates will enhance the overall volatility risk of the stock market. This was mainly due to two factors: the rise in interest rates will lead to short-term enhancement of the stock market liquidity, so leading to increased volatility risk of stock market. On the other hand, the rise in interest rates will lead to the ratio changing on the capital type of risk preferences in stock market. The proportion of investors based on the technology trends and the radical-based significant increase. The risk-based screening mechanism is the main factor to increase stock market volatility.3. The rise in interest rates will inhibit the volatility of capital flow in stock market. However, the capital volume in stock market has not reduced tendency. From a longer study period, China's interest rate adjustments have not played a guiding role on the stock market's capital liquidity. the Non-market formation and transmission mechanism of interest rate; the immaturity of our investors and the stock market; "Path Dependence "and "Profit-driven" of capital are the main factors that changes in the amount of funding in China's stock market is not sensitive to interest rate adjustments.4. This paper argues that, for a certain extent and stage, institutional investors can inhibit the development of stock market volatility and uncertainty risk, but comprehensive and carefully considered the differentiation in development stages of the securities market. At the same time, cannot negate the individual investors in the stock market's positive role. Government regulators should strengthen the supervision and positive way to guide the use of institutional investors to invest in a variety of methods, the formation of different investment styles and portfolio risk.5. This paper holds that technology-based and noise-based individual investors will increase in China's stock market volatility risk, especially for technology-based individual investors, rather than we generally believed that only noise-based individual investors play a major role to China's stock market fluctuations. This requires conscious market regulations to strengthen the values-based investment philosophy of individual investors. However, at the same time the market should also pay attention to the appropriate volatility requirements in order to guarantee a certain degree of market activity, to maintain our stock market's stability and sustainable development.For a long period, the research methods of economics have been taking up by the theory of non-experimental analysis and model assumptions hold, "It is more like astronomy or meteorology, rather than physics and chemistry." 2002 Nobel Laureate in Economics, the founder of experimental economics - Vernon L. Smith pointed out:" the majority of economic theory can be properly referred to as' priest of the theory ', it was accepted (or reject) is based on the authority of habit or for the evaluation of assumptions, rather than based on a rigorous, repeatable process. Therefore, it can be said that economic theory has not been the experimental study is not complete, its conclusions is the lack of credibility". Smith believes that any natural experiments must be designed to artificially reproduce the natural conditions. The experimental economics should also be appropriate to streamline the external environment, in order to highlight the intrinsic link of things to find the essence of the principle. This not only will not affect its main objective laws, but more user-friendly search for objective laws. This paper is just based on research methods and theory of experimental economics and traditional economics, to carry out a experimental study and theoretical discussion on China's stock market volatility risk.