Fractal Analysis To Relative Efficiency Of Chinese Foreign Exchange Market

The research on foreign exchange market efficiency and fluctuation characteristic of exchange rate is one of the basic and key issues of market research. For a long time, the linear framework decides the research on efficiency and EMH has been regarded as the mainstream. With the deepening of study, people have realized that the dynamic nonlinear model would be more suitable to reflect the objective reality of foreign exchange market. Fractal market hypothesis is a representation among them and the empirical research abroad has fully proved its superiority and credibility.This paper breaks through the linear framework, puts forward "relative efficiency ", and concludes that the relative efficiency of Chinese foreign exchange market is much lower.This paper includes five chapters as follows.Chapter one: Preface.This chapter includes the main content, the research approaches and the goal of this article and introduces the present status of related research.Chapter two: The relative efficiency concept of foreign exchange market and the comparison of EMH and FMH. This chapter puts forward the concept of relative efficiency, compares EMH and FMH and concluds that FMH is much proper than EMH in the research on foreign exchange market.Chapter three: The first study of non-linear characteristic of foreign exchange market. Empirical analysis shows that foreign exchange market disobeys normal distribution and has the non-linear characters of autocorrelation, nonstationarity, heteroskedasticity and self-similarity. These characters are not corresponding to EMH, at the same time these characters prove that EMH is not appropriate to be carried on the efficiency analysis of foreign exchange market.Chapter four: Fractal analysis of relative efficiency of foreign exchange market. R/S analysis shows that the earning ratio of foreign exchange is permanent array, which has the characters of fractal distribution, biased random walk and trend strengthen. Compared with other 17 countries, the relative efficiency of Chinese foreign exchange market is relatively lower, lacks of noise and has stronger trend. So that we should develop foreign exchange market and perfect the forming mechanism of RMB exchange rate, early warning system of foreign exchange market and intervening mechanism of central bank.Chapter five: Summary and prospects. This chapter summarizes the main innovations, conclusions and deficiencies of this paper, and also gave a vista of deeper research.