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Persistence characteristics of the Chinese stock markets

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  • Los, Cornelis A.
  • Yu, Bing

Abstract

This paper identifies such fundamental characteristics as the lack of ergodicity, stationarity, and independence, and it identifies the degree of initial persistence of the Chinese stock markets when they were more regulated. The index series are from the Shanghai (SHI) stock market and Shenzhen A-shares (SZI) and B-shares (SZBI) stock markets, before and after the various deregulations and reregulations. Accurate and complete signal processing methods are applied to the complete series and to their sub-periods. The evidence of lack of stationarity and ergodicity can be ascribed to two causes: (1) the initial interventions in these stock markets by the Chinese government by imposing various daily price change limits, and (2) the changing trading styles in the course of the development of these emerging stock markets, after the Chinese government left these equity markets to develop by themselves. By computing the markets' monofractal Hurst exponents (and its accuracy range with a new statistic), using wavelet multiresolution analysis (MRA), we identify the markets' subsequent degrees of persistence. The empirical evidence shows that SHI, SZI, and SZBI are moderately persistent with Hurst exponents slightly greater than the Fickian 0.5 of the Geometric Brownian Motion. It also shows that these stock markets were considerably more persistent before the deregulations, but that they now move much more like geometric Brownian motions, i.e., efficiently. Our results also show that the Chinese stock markets are gradually and properly integrating into one Chinese stock market. Our results are consistent with similar empirical findings from Latin American, European, and other Asian emerging financial markets.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Financial Analysis.

Volume (Year): 17 (2008)
Issue (Month): 1 ()
Pages: 64-82

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Handle: RePEc:eee:finana:v:17:y:2008:i:1:p:64-82

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Web page: http://www.elsevier.com/locate/inca/620166

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References

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Citations

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Cited by:
  1. Fernandez, Viviana, 2010. "Commodity futures and market efficiency: A fractional integrated approach," Resources Policy, Elsevier, vol. 35(4), pages 276-282, December.
  2. Espinosa Méndez, Christian, 2007. "Efecto Fin De Semana Y Fin De Mes En El Mercado Bursatil Chileno
    [Effect Weekend And Effect Month End In The Chilean Stock Market]
    ," MPRA Paper 3252, University Library of Munich, Germany.
  3. Espinosa Méndez, Christian, 2005. "Evidencia De Comportamiento Caótico En Indices Bursátiles Americanos
    [Evidence Of Chaotic Behavior In American Stock Markets]
    ," MPRA Paper 2794, University Library of Munich, Germany, revised 30 Jun 2006.
  4. Wong, Woon K. & Tan, Dijun & Tian, Yixiang, 2009. "Informed trading and liquidity in the Shanghai Stock Exchange," International Review of Financial Analysis, Elsevier, vol. 18(1-2), pages 66-73, March.
  5. Chaker Aloui & Duc Khuong Nguyen, 2014. "On the detection of extreme movements and persistent behavior in Mediterranean stock markets: a wavelet-based approach," Working Papers 2014-184, Department of Research, Ipag Business School.
  6. Amélie Charles & Olivier Darne, 2009. "The random walk hypothesis for Chinese stock markets: Evidence from variance ratio tests," Post-Print hal-00771080, HAL.
  7. Xiao, Weilin & Zhang, Weiguo & Xu, Weijun & Zhang, Xili, 2012. "The valuation of equity warrants in a fractional Brownian environment," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(4), pages 1742-1752.
  8. Jiang, Chonghui & Ma, Yongkai & An, Yunbi, 2009. "The effectiveness of the VaR-based portfolio insurance strategy: An empirical analysis," International Review of Financial Analysis, Elsevier, vol. 18(4), pages 185-197, September.

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