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The China A shares follow random walk but the B shares do not

Author

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  • Dat Bue Lock

    (Feng Chia University)

Abstract

The China A-Share stocks and the China B-Share stocks are common stocks issued by companies incorporated in China. These two classes of common stocks differ in the nationality of the investors each is restricted to by law. For the most part, the A shares, quoted in the Chinese yuan, or renminbi, are for Chinese nationals while the B shares, quoted in foreign currencies, are for non-Chinese nationals and residents of Macau, Hong Kong and Taiwan. This paper identified eighty-six companies issuing both the A and B shares and tested if these shares weekly returns follow a random walk. Employing the Lo and MacKinlay variance ratio test statistics, it is discovered that five times more B shares rejected the random walk as did the A shares. Moreover, both the Shenzhen and Shanghai B-Share indexes reject the random walk while neither the Shenzhen nor Shanghai A-Share index reject the random walk.

Suggested Citation

  • Dat Bue Lock, 2007. "The China A shares follow random walk but the B shares do not," Economics Bulletin, AccessEcon, vol. 7(9), pages 1-12.
    • Handle: RePEc:ebl:ecbull:eb-07g00084
    as

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    File URL: http://www.accessecon.com/pubs/EB/2007/Volume7/EB-07G00084A.pdf
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    References listed on IDEAS

    as
    1. Andrew W. Lo, A. Craig MacKinlay, 1988. "Stock Market Prices do not Follow Random Walks: Evidence from a Simple Specification Test," The Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 41-66.
    2. Darrat, Ali F & Zhong, Maosen, 2000. "On Testing the Random-Walk Hypothesis: A Model-Comparison Approach," The Financial Review, Eastern Finance Association, vol. 35(3), pages 105-124, August.
    3. Benjamin Miranda Tabak. Solange Maria Guerra, 2002. "Stock Returns and Volatility," Working Papers Series 54, Central Bank of Brazil, Research Department.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Chen, Jing & Buckland, Roger & Williams, Julian, 2011. "Regulatory changes, market integration and spillover effects in the Chinese A, B and Hong Kong equity markets," Pacific-Basin Finance Journal, Elsevier, vol. 19(4), pages 351-373, September.
    2. Hiremath, Gourishankar S & Bandi, Kamaiah, 2009. "On the random walk characteristics of stock returns in India," MPRA Paper 46499, University Library of Munich, Germany.

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