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Is the Chinese stock market really inefficient?

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  • Chong, Terence Tai-Leung
  • Lam, Tau-Hing
  • Yan, Isabel Kit-Ming

Abstract

Groenewold et al. (2004) documented that the Chinese stock market is inefficient. In this paper, we revisit the efficiency problem of the Chinese stock market using time-series model based trading rules. Our paper distinguishes itself from previous studies in several aspects. First, while previous studies concentrate on the viability of linear forecasting techniques, we evaluate the profitability of the forecasts of the self-exciting threshold autoregressive model (SETAR), and compare it with the conventional linear AR and MA trading rules. Second, the findings of market inefficiency in earlier studies mainly rest on the statistical significance of the autocorrelation or regression coefficients. In contrast, this paper directly examines the profitability of various trading rules. Third, our sample covers an extensive period of 1991–2010. Sub-sample analysis shows that positive returns mainly concentrate in the pre-SOE reform period, suggesting that China's stock market has become more efficient after the reform.

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Bibliographic Info

Article provided by Elsevier in its journal China Economic Review.

Volume (Year): 23 (2012)
Issue (Month): 1 ()
Pages: 122-137

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Handle: RePEc:eee:chieco:v:23:y:2012:i:1:p:122-137

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Web page: http://www.elsevier.com/locate/chieco

Related research

Keywords: Efficient market hypothesis; SETAR model; Bootstrapping; SOE reform;

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Citations

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Cited by:
  1. Chang, Kuang Liang & Chen, Nan Kuang & Leung, Charles Ka Yui, 2011. "The Dynamics of Housing Returns in Singapore: How Important are the International Transmission Mechanisms?," MPRA Paper 32255, University Library of Munich, Germany.
  2. Chang, Kuang Liang & Chen, Nan Kuang & Leung, Charles Ka Yui, 2011. "In the Shadow of the United States: The International Transmission Effect of Asset Returns," MPRA Paper 32776, University Library of Munich, Germany.
  3. Ladislav Kristoufek & Miloslav Vosvrda, 2012. "Measuring capital market efficiency: Global and local correlations structure," Papers 1208.1298, arXiv.org.

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