Fractal Market Hypothesis And Study On China Stock Market

EMH is a prerequisite theory of analyzing the capital market all the time, as oneof the foundations stone of economics of Neoclassicism. EMH is also the core of thetheory of quantified, financial market. Financial theory models, such as CAPM(Capital Assets Pricing Model), APT(Arbitrage Pricing Theory),are set up on thefoundation of EMH and have built investment theory system in modern times. Thissystem looks like consummate, but whose reality applies is restricted and applyingeffort is not satisfaction. The company LTCM (Long-Term Capital Management)leaded by Merton who was rewarded by Nobel Prize of economics occurred crisis in1998. This fact can explain this viewpoint enough. The key point is that thehypothesis is on a series of on above-mentioned theory. The most importanthypothesis is that the earning ratio rectifying is obeyed normal distribution andshaking randomly. The premise hypothesis leads theory derivation simply andsmoothly. But the reality is unqualified with experience obviously. On the other hand,the effect on the weekend, one a fn-m, on a month etc. is abnormality phenomenonand goes against EMH. The scholars have discovered it in succession. Theseresearches have indicated that the linearity canonical form and EMH are out of use onthis time. This fact brings forward challenge to EMH. From the viewpoint of thennon-linear one Peters propose capital market suppose basically -Fractal MarketHypothesis(FMH) that seeming not so perfect but most reality, and support this newhypothesis with a large amount of positive research, thus explained "anomalies, thatthe EMH and existing capital market theory can't be explained. This paper proceedfrom the Efficient Market Theory, propose its defects, draw and divide into FractalMarket Hypothesis, introduce its theory, and by marking there sealed range analysis(R/S approach) and carry on the analysis of the real example to the stock market ofShanghai of our country again.This paper is mainly divided into four chapters.Part one: content and defects of the Efficient Market. We briefly introduce its content, form and theoretical foundation, and put forward the defects of EMH.Part two: fractal theory and Fractal Market Hypothesis. We introduce theestablishment, development, content of the Fractal Theory; the detailed introductiondivides into the theory, content of FMH, course and application of R/S analytic.Approach and Hurst index; also including the meaning in the market survey.Part three: empirical analysis of FMH in the two big stock market of China. Inthis part, with Shanghai Stock Exchange composite-index of the week of the timebetween 1990.12.19 and 2005.3.17, and for Shenzhen that the time is 1991.4.4 to2005.6.20, we all use R/S analytic approach and divide into the fractal structure toanalyze.Part four: conclusion.