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China: Further Evidence on the Evolution of Stock Markets in Transition Economies

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  • Xiao-Ming Li

Abstract

We revisit the weak-form efficiency of China's stock markets by examining its changing behaviour over the entire history of the Shanghai and Shenzhen Stock Exchanges. The Kalman Filter technique is applied to the system consisting of a time-varying AR model and an asymmetric TGARCH equation. The estimates of predictability combined with other non-quantifiable, evolutionary characteristics of the markets are used to infer on their efficiency. It is shown that, at their initial development stages, both the Shanghai and Shenzhen markets were inefficient. However, the past decade saw a steady convergence of the two markets towards efficiency. An abnormal leverage effect is detected for Shanghai, but no strong evidence is found that there exists the information transmission between the two markets. Copyright (c) Scottish Economic Society 2003.

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  • Xiao-Ming Li, 2003. "China: Further Evidence on the Evolution of Stock Markets in Transition Economies," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(3), pages 341-358, August.
  • Handle: RePEc:bla:scotjp:v:50:y:2003:i:3:p:341-358
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    Cited by:

    1. Li, Xiao-Ming & Zou, Li-Ping, 2008. "How do policy and information shocks impact co-movements of China's T-bond and stock markets?," Journal of Banking & Finance, Elsevier, vol. 32(3), pages 347-359, March.
    2. Xiao-Ming Li, 2003. "Time-varying Informational Efficiency in China's A-Share and B-Share Markets," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, pages 33-56.
    3. Bhattacharjee, Arnab & Hany, Jie, 2010. "Financial Distress in Chinese Industry: Microeconomic, Macroeconomic and Institutional Infuences," SIRE Discussion Papers 2010-53, Scottish Institute for Research in Economics (SIRE).
    4. Bhattacharjee, Arnab & Han, Jie, 2014. "Financial distress of Chinese firms: Microeconomic, macroeconomic and institutional influences," China Economic Review, Elsevier, vol. 30(C), pages 244-262.
    5. Hung, Jui-Cheng, 2009. "Deregulation and liberalization of the Chinese stock market and the improvement of market efficiency," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(3), pages 843-857, August.
    6. Cajueiro, Daniel O. & Tabak, Benjamin M., 2006. "Testing for predictability in equity returns for European transition markets," Economic Systems, Elsevier, vol. 30(1), pages 56-78, March.
    7. Abdmoulah, Walid, 2010. "Testing the evolving efficiency of Arab stock markets," International Review of Financial Analysis, Elsevier, vol. 19(1), pages 25-34, January.
    8. Fifield, Suzanne G.M. & Jetty, Juliana, 2008. "Further evidence on the efficiency of the Chinese stock markets: A note," Research in International Business and Finance, Elsevier, pages 351-361.
    9. M. Rahman & M. Hassan, 2013. "Firm fundamentals and stock prices in emerging Asian stock markets: some panel data evidence," Review of Quantitative Finance and Accounting, Springer, vol. 41(3), pages 463-487, October.
    10. Girardin, Eric & Liu, Zhenya, 2005. "Bank credit and seasonal anomalies in China's stock markets," China Economic Review, Elsevier, vol. 16(4), pages 465-483.
    11. Lim, Kian-Ping & Brooks, Robert D. & Kim, Jae H., 2008. "Financial crisis and stock market efficiency: Empirical evidence from Asian countries," International Review of Financial Analysis, Elsevier, vol. 17(3), pages 571-591, June.
    12. Vít Pošta, 2008. "Estimating the Dynamics of Weak Efficiency on the Prague Stock Exchange Using the Kalman Filter," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 58(05-06), pages 248-260, August.

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