Research On The Nonlinear Characteristic Formation Mechanism In Stock Market Considering The Wealth And Information

There are still many theory and methodology drawbacks in the study of nonlinear characteristics formation mechanism of the financial market. Based on the theory of computational finance, this paper first reviewed the theory and methods used in the study of nonlinear characteristics of the stock market. Then an empirical research on the Chinese stock market is carried out. It is demonstrated that there are three typical characteristics in stock market, including peak, fat tail, volatility clustering and long-term memory. After that we analyzed how wealth and information affect the formation of the nonlinear characteristics. We added the wealth and information model, and constructed an artificial stock market emphasizing on the wealth and information factors. The formation reasons of the peak, fat tail, volatility clustering phenomenon in stock market are analyed through the simulation of the artificial stock market.Results show that the influences of wealth and information on the formation of three nonlinear characteristics are different. Peak, fat tail and long-term memory will appear more often when the wealth is evenly distributed. However, volatility clustering will appear more often when the wealth is unevenly distributed. Unequal information process will lead the return to peak and fat tail occur more often, while equable information processing leading the return to be more volatility clustering. Using more historical information will lead the return to be more long-term memory.The formation reasons of nonlinear characteristics in stock market are not the same. We cannot control all nonlinear characteristics through one specific policy. Market supervisor can adopt pertinent policy instruments to control and manage its risk. For example, if the market becomes ineffective, we can accelerate the development of fund market, educate investors and suggest investors to take comprehensive analysis toward the stock market in order to maintain the stability of the capital market. When volatility clustering phenomenon is getting serious, we can expand the source of capital in the stock market to avoid market capital to be too concentrated.