Multifractal Characteristics of China’s Stock Market and Slump’s Fractal Prediction

Abstract

It is necessary to quantitatively describe or illustrate the characteristics of abnormal stock price fluctuations in order to prevent and control financial risks. This paper studies the fractal structure of China’s stock market by calculating the fractal dimension and scaling behavior on the timeline of its eight big slumps, the results show that the slumps have multifractal characteristics, which are correlated with the policy intervention, institutional arrangements, and investors’ rationality. The empirical findings are a perfect match with the anomalous features of the stock prices. The fractal dimensions of the eight stock collapses are between 0.84 and 0.98. The fractal dimension distribution of the slumps is sensitive to market conditions and the active degree of speculative trading. The more mature market conditions and the more risk-averse investors correspond to the higher fractal dimension and the fall which is less deep. Therefore, the fractal characteristics could reflect the evolution characteristics of the stock market and investment philosophy. The parameter set calculated in this paper could be used as an effective tool to foresee the slumps on the horizon.