Evolution Mechanism Of The Stock Market And Its Complexity

Because the classical finance theory can not interpret the abnormal phenomena in security market, Many academicians try to understand the mechanism of security market and the fluctuating behaviors of security's price from the Behavior Finance and Nonlinear Science. Thereinto, the study on evolvement mechanism of security market basing on nonlinear dynamics is the hotspot in recent yearsThe study on evolvement mechanism of security market and complexity can help us to realize the internal mechanism of economy system and complexity phenomena. At the same time it can make us better know the risk of asset price and provide the theory base for the pricing of options and other deriving asset , risk management and government supervision.First, the paper summarizes the challenge of standard finance by analyzing the objection of EMH and describing the failure conditions of nonlinear equations and the abnormal phenomena. At the same time, the paper acknowledges security market from the Behavior Finance and Nonlinear Science and advances that security market is an adaptive evolvement complex system. Many complex behaviors in the evolvement process of system are opened out. Furthermore, the paper provides the theory base for the study on the complex evolvement system from the System theory, Cybernetics and CMH.Basing on the framework of ABS of Brock and Hommes(1997,1998), the paper constructs a dynamic nonlinear model to explore the internal fluctuating mechanism of security prices by introducing heterogeneous traders and considering the mutual dependence and mutual transform of multi-individuals in time and space. The numerical simulation of selective sensitivity, memorizing factor and punishing factor indicates that selective sensitivity is positive relationship with security price fluctuation, and that the memorizing factor and punishing factor is negative relationship with security price fluctuation.The innovation lies in two aspects: One is introducing noise traders to mend themodel. The presence of noise traders is one of the reasons for the acute fluctuation of security price. The simulation approves the above issue. With the increase of noise factor, the fluctuation of security price is increasing; The other is analyzing the falling limit and fictitious transaction mechanism and discussing the transform of security market microstructure. Many studies on falling limit and fictitious transaction mechanism are focused on the static view for the two mechanisms' specialities. Adopting the numerical value simulation, the paper discusses the effect to security prices by the change of two mechanisms in a dynamic view. That is a little advancement and provides a new view for the study of the security market's microstructure. The simulation results indicates that the falling limit has an optimal scale. On optimal scale the number of fundamentalist is most and the number of noise traders and technical analysts is least, and the fluctuation of security price is small. In fictitious transaction mechanism, buying short can decrease the fluctuation of security price while short sale will increase it.Basing on the above analysis, the paper suggests that building logical falling limit, building the scientific supervision of fictitious transaction mechanism, enhancing the information transparency, introducing the tax of investment gains and dealing, developing the new finance security products and increasing the number of institution investors.