China's Capital Market Chaos

In investment finance subject, there is no any a concept to be tested widely by so many scholars than 'Efficient Market Hypothesis', but a fat lot will believe it. However, to be the quantity capital market, this concept is bedrock and last ten years the study mostly depends on it. The indication of 'The Efficient Market Hypothesis' is at the early 19th century. The basis function to EMH is that it is legitimate when we analyze the capital market by probability calculus. If the market is nonlinear dynamics, then we would have a mistake result by using standard statistic, especially we using random walk model. So it is very indispensable to revaluate the rear hypothesis of the present capital market theory.The basic reason that the traditional capital market theory can not make clear the true-life is that the traditional capital market theory study the capital market on the linear model mostly, but the present capital market affect mostly the environment by nonlinear model, and the nonlinear is at large in the true economy, the nonlinear connection make the causality unbalance. The true economy's complication is caused by the reciprocity of nonlinear, in our country, the price of the stock changes frequently in the huge range and the strongly self-correlation of the time series clearly indicate that it is nonlinear. So we must study the capital market by nonlinear system analysis (Dai, 1996). The fractal and chaos theory are effective tools to study nonlinear system, quantifying the indeterminate nonlinear system, using aboard in the nature study, last years, many scholars study the capital market by that method, conquer the EMH and the capital market theory's localization, inaugurate the new phase of the capital market study.This article reviews all kinds describing definition of nonlinear chaos, researches particularity sorts of chaos, discusses and studies the characteristic of chaos and means of distinguishing chaos and finding characteristics of chaos, in particular, studies the epistemology and methodology of the chaos theory. Countingcorrelation dimension of time series of composite price index of shanghai stock exchange by G-P means, analysis testifies chaos progress of the index fluctuation progress, sequentially validates chaos phenomena being in Chinese capital market. It also reminds us that we should take into account the nonlinear model when we study the Chinese capital Market.The results of verification indicates that there is low freedom chaos system of Fractal dimension frame in the Chinese capital market, the movement of composite price index of shanghai stock exchange follows a certain determinate rule. Though it can't explain that a certain rule control the whole system, it tells us that the number of the basic variable composing the whole system is between 2 and 14. In fact, those factors include economy increasing rate, interest rate, save rate, inflation rate, policy, psychology etc.