Study On Financial Returns And Volatility Based On Symbolic Time Series Analysis

The change and volatility of the returns in the financial market is one of the obvious and inevitable phenomena in the development of finance. Especially since the 1970s, under the big circumstance of globalization, the complexity and adventure of the financial market globally has been growing. In order to get to know the development progress of the finance and the rules of its change, researches on the financial market returns and volatility is of great significance.The financial system is a very complex big system, and its complexity comes from its non-linearity. Therefore, it is of great scientific importance and application prospect to probe into the financial problems with the time series analysis method in the non-linear dynamics, and the research fruits in the natural science and engineering field as well as the financial econometrics method.This paper is based on the above analysis. First, it probes into the background and importance of the financial market returns and its change. Then, it illustrates their objectivity and performance characteristics. Third, it concludes the methods of financial econometrics and supplies the basis of financial econometrics to research on its volatility. Fourth, it summarizes the theoretical basis and operative procedures of this method with the help of symbolic time series analysis method, combined with the specific characteristics of the financial market. Finally, this paper probes into the Shanghai Market and Shenzhen Market with the analysis of the Shanghai Stock Exchange composite index and Shenzhen Stock Exchange component index, based on the symbolic time series analysis method.This paper gives a method to measure the market efficiency change with time with the help of the time varying modified Shannon entropy. It analyzes the probability chance of abnormal price change, its relationship with the market validity and the relationship between the probability chance of sharp drop and market efficiency. The results show that the worse the efficiency is, the greater two probability chances are, especially on the sharp drop probability. This paper gives the major changeing mode of returns with the help of the histogram. And it verifies its rationality with the analysis of the indexes of time irreversibility, T fband ? 2. Finally, this paper brings up the method to predict the future profit tendency, which offers a foundation for practices.This paper is a part of the project―Study on Financial Volatility Based on Symbolic Time Series Analysis‖(item number: 70971097), which is supported by national natural science foundation.