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Weak-form Efficiency and Causality Tests in Chinese Stock Markets

Author

Listed:
  • Martin Laurence

    (William Paterson University of New Jersey, U.S.A.)

  • Francis Cai

    (William Paterson University of New Jersey, U.S.A.)

  • Sun Qian

    (Nanyang Technological University, Singapore)

Abstract

China has two major stock exchanges, the Shanghai and the Shenzen exchanges. Each of these exchanges trades two types of shares, type “A” and type “B” shares. Type “A” shares are available to domestic investors only and type “B” shares are available to foreign investors. This article tests for the weak-form efficiency in these markets and explores the statistical relationships and causality among these Chinese stock markets with each other and with the U.S. and Hong Kong stock markets. The results indicate the existence of (1) a weak-form efficiency in the market for “A” shares but not “B” shares, (2) statistically weak linkages between the Chinese markets, (3) a weak causal effect from the Hong Kong to the four Chinese markets, and (4) a strong causal effect from U.S. stock mark to all four Chinese stock markets and the Hong Kong Stock market, particularly during the second period of the sample. These results support the assertion that the Chinese stock markets are becoming more integrated to the global economy.

Suggested Citation

  • Martin Laurence & Francis Cai & Sun Qian, 1997. "Weak-form Efficiency and Causality Tests in Chinese Stock Markets," Multinational Finance Journal, Multinational Finance Journal, vol. 1(4), pages 291-307, December.
    • Handle: RePEc:mfj:journl:v:1:y:1997:i:4:p:291-307
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    References listed on IDEAS

    as
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    5. Hsiao, Cheng, 1981. "Autoregressive modelling and money-income causality detection," Journal of Monetary Economics, Elsevier, vol. 7(1), pages 85-106.
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    More about this item

    Keywords

    Chinese stock markets; Granger causality tests; Hong Kong stock market; market efficiency;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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