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A Study on Market Efficiency Using Data from Shanghai Stock Exchange and Shenzhen Stock Exchange

Author

Listed:
  • Guoxi Duan

    (Graduate School of Economics, Osaka University)

  • Hisashi Tanizaki

    (Graduate School of Economics, Osaka University)

Abstract

This paper studies market efficiency from weak form aspect using data of Shanghai Stock Exchange composite index (SSEC) and Shenzhen Stock Exchange composite index (SZSEC) under expected return theory. Some classical methods are used to examine the features of stock returns and a little evidence against mutually independency, random walk of returns, and sub-martingale of stock prices is found. A notion of a new simple statistical test based on information set for judgement of market efficiency is proposed. Through hypothesis tests, evidence indicating inefficient markets around 2008, 2011 and 2018 under expected return theory is found. It is a new finding that SZSEC is more sensitive to information and therefore may be more appealing to investors than SSEC. Moreover, there is an another new finding that when market extends in size the degree of whole market efficiency declines. From the relationship between market efficiency and volatility, volatility is not a very good criterion for market efficiency but some rough rules can be concluded to help investors make their decisions on what time to conduct their own strategies. Finally, the results suggest that it is the time to think about strategies.

Suggested Citation

  • Guoxi Duan & Hisashi Tanizaki, 2021. "A Study on Market Efficiency Using Data from Shanghai Stock Exchange and Shenzhen Stock Exchange," Discussion Papers in Economics and Business 21-22, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:2122
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    More about this item

    Keywords

    stock market; market efficiency hypothesis; random walk; investment strategy; hypothesis test;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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