Study Of The Effectiveness Of China's Securities Market

As the foundation of mainstream finance and modern investment theory, the Efficient Marker Hypothesis (EMH) has been widely concerned and constantly debated in the field of finance for long time. During the more than ten years after EMH been put forward, it gain strongly sustain from theory and demonstration. Entering the 1980's, some empirical tests challenged EMH. Many study results disagreed with EMH. Subsequently, Edgar E. Peters presented the Fractal Market Hypothesis (FMH), which broke the simple and linear thinking way . Although EMH sustainers tried to explain the questions mentioned above, the result is dissatisfactory. Some anomalies can't be explained by EMH.Since the foundation of Shanghai securities market, many researchers study the efficiency of Chinese securities market by using foreign test method. But their conclusions are disaccord. Compared with foreign mature securities market, Chinese securities market has great disparity among market function, trading enterprise quality, investor structure, law and rule. Therefore, we can't directly copy foreign test method to examine Chinese securities market efficiency. Under such theoretical and realistic circumstances, this paper studies the price behavior and Chinese securities market efficiency from nonlinear aspect by applying the theory of fractal market analysis.This paper chooses Composite Index of Shanghai as sample. Through the normal distribution test, the paper proves that daily returns ratio is not normal distribution. It shows the distribution characters of high peak and thick tail. So this paper selects Rescaled Range (R/S) Analysis which not only analyses normal distribution series but also analyses non-normal distribution series. By R/S analysis, the Hurst exponent is 0.645. The Hurst exponent implies that Chinese securities market obviously exhibits fractal and persistence properties. The securities return ratio is not random but biased random walk. The securities return ratio series is not independent but long-run correlations, and it has a long-run memory of 304 days. The empirical result shows that price behavior has the fractal property.According to the empirical result, the paper expounds how to understand securities market efficiency from the angle of non-linear. Investors' nonlinear reaction to new information decides that information can't be quickly, completely, and unbiasedly reflected in price and stock price can't adjust to its value immediately. Under such circumstances, stock price not always converge to single equilibrium. Single equilibrium is ideal and instable. The persistent fractal structure is the normality of price behavior. Therefore, when we talk about securities market efficiency, it must be connected with specific time scaling or it is insignificant. At last, the paper scans technical analysis and fundamental analysis, which are negatived by EMH. Fractal market shows the coexistence of order and out-of-order, which provides existing space for technical analysis and fundamental analysis. But market is a complicated and adaptable system, which results in the finite efficiency of technical analysis and fundamental analysis, so investors can't easily win market.