The Empirical Analysis Of China Stock Market Based On Fractal Market Theory

The aim of the development of stock market is to create a standardized, efficient and competitive market, and the effectiveness of stock market is important signs which is used to measure the information distribution, the transparency of transactions and the extent of criterion. The traditional capital market theories are always dominated by the efficient market hypothesis, furthermore, the capital asset pricing model and the option arbitrate model are also originated from the former one. The opinion of the efficient market hypothesis is that the price of the stock in the efficient capital market complies to the random motion, but the fact is that the assumptions of the theory do not meet the actual stock market, however, many researches demonstrate that the efficient market hypothesis can not reflect well the features of the market, furthermore, the change of price does not comply with the random motion.The Fractal Market Hypothesis suggests that capital market prices follow a biased random motion called fractional Brownian motion.lt can be summarized as followed:Firstly, when abundant investors of different investment point coexist, the market is stable.Secondly, the information set is more involved in the market sensitivity and technique in the short term than in the long term.Thirdly, once there was a sudden affair arose, the validity of long-term information might be in problem, so the long-term investors may shut the books, or they may trade according to short-term information.Fourthly, the price reflects the combination of short-term technique transactions and long-term basic evaluation.Fifthly, if the security has nothing to do with the economic cycle, there would be no long-term transactions.This paper makes the doubts about the assumptions of the valid market theory based on the traditional capital market theory and the development of Chinese stock market, which finally makes the empirical analysis of Chinese stock market with the help of R/S method experienced in the fractal market theory that we make it as the research tools.In the analysis process, we get the revenue series data of shanghai stock index and Shenzhen component index between the creation of stock market and the time 2010.08.31 as the empirical data. Firstly, we make the non-liner empirical test on the revenue series data. We find that Chinese stock market does not meet the normal distribution, however, it features the peak and the heavy tail, which proves the non-linear components exist in Chinese stock market through the further linear and the non-linear correlation test. Secondly, we make the calculation of the revenue series data of shanghai stock index and Shenzhen component index in Chinese stock market and get the respective Hurst index 0.556,0.563 with the help of R/S analysis method after we get the conclusion that certain non-linear components exist in Chinese stock market, which proves the revenue series index complies to the fractional Brownian motion and the fractional motion matters the change of price. On the other hand, we also get the fact that there exists 310 days called statistics cycle in shanghai stock index while the one in Shenzhen component index is much longer, about 1100 days through the calculation of the statistics V. Thirdly, we make the fractional analysis on the general distribution of Chinese stock market on the condition that Chinese stock market features fractional, and we also get the conclusion that the general distribution of Chinese stock market complies to the Pareto-Levy which is one of the fractional distribution based on the determination of features index a, furthermore, we also get the features index features index a of general distribution of shanghai stock index is 1.799 while the one of Shenzhen components index is 1.776. Finally, we make the analysis on the influences of reforms of Chinese stock system.