Research On The Complexity Of Financial Markets And Financial Bubbles

The complex financial markets have exhibited many anomalies including financial bubbles that can not be explained by the traditional financial economics,and much even less to predict the financial crisis.Research on the complexity of financial markets has attracted wide attention of many scholars in the multi-disciplinary fields that combine the perspective of complexity with pattern recognition technology.Based on the perspective derived from the complexity theory,coordinating the theories and methods of nonlinear science,econophysics and pattern detection technology,this thesis characterizes the complexity and evolution mechanisms of China’s financial markets,and establishes a framework of methodology to detect financial bubbles.The main contents and contributions of this thesis can be summarized as following.(1)This thesis focuses on the issues of China’s financial markets,which mainly investigates a complex system consisting of the monetary,securities and foreign exchange markets.It proposes the evolution mechanisms regarding the correlation in structure,nonlinearity in action and adaptivity in function.It also builds framework-based models and applies them to analyze the financial bubbles of stock market.More details,the three-body “bondage” model capturing the correlations is proposed to describe the complex relationships between the sub-markets.The nonlinear dynamics model based on the Langevin equation divides the nonlinear actions into endogenous and exogenous ones.The feedback model describes the evolutionary paths and the dynamic adaptive ability in the realization of market functions.(2)Via a more prudent bondage-based perspective,the thesis applies the evolution mechanisms to analyze the relationships among the policy goals of the China’s financial markets.More details,this thesis proposes a “bondage” structural model among the monetary,foreign exchange and securities markets in terms of the trilemma.It introduces a foreign exchange intervention index to explore a new market landscape and regulatory strategies.Based on the differential evolution algorithm and its application to the real data,it presents the estimated nonlinear systems among the three policy goals of monetary independence,foreign exchange intervention and capital account openness.The analysis results show the existence of equilibrium and the local structural stability of systems by the system dynamics approach.Capital account openness and monetary independence are in proximity to moderate levels after a short-term evolution(about1 year).It could lock-in into different proportions in the long-term evolution(about 5 years)for its sensitive dependence on initial conditions.In addition,China has the policy preference in the predominance of exchange rate stability while the capital openness could be the leading indicator to affect their proportions.(3)To detect the critical times of phase transitions within the evolution,this thesis studies the Log-Periodic Power Law Singularity model with the underlying mechanism that positive feedbacks generically lead to finite-time singularities.It first proposes a novel combination of the many quantile regressions and a multi-scale analysis to investigate the ensemble of parameters.It also provides a set of visible and testable methodology,such as the presentations of q-Voilin plot and dt-Violin plot.The performance of the DS LPPLSTMindicators,on the events of financial bubbles collapse in various countries that includes the crash of China’s stock market in June 2015,has demonstrated that the new technology can improve the predictive ability derived from the standard Ordinary Least Squares method.The quantile-based systemic indicators have presented the significant early warning signals of financial crashes and rebounds.(4)This thesis specifically illustrates the relationships between those mechanisms and the systemic characteristics of complexity.Then it describes the spatiotemporal structure in relation to the elements and hierarchical structure that are suitable for the China’s financial markets.Through integrating the micro infrastructure,meso market structure,with macro management structure,a framework coping with complexity is finally built in terms of the environment,composition,association,feedback,evolution and risk management.It thus puts forward some suggestions on the management,stability and prosperity of the China’s financial markets,as well as the short-median-long path planning of market structure.