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An Exploration of the Efficiency of the Chinese Stock Market

Author

Listed:
  • Nicolaas Groenewold

    (Department of Economics, The University of Western Australia)

  • Sam Hak Kan Tang

    (Department of Economics, The Chinese University of Hong Kong)

  • Yanrui Wu

    (Department of Economics, The University of Western Australia)

Abstract

This paper explores weak and semi-stong efficiency for both A and B shares traded on the Shanghai and Shenzhen stock exchanges using daily data for seven indexes for the period 1992-2001. We find evidence of departures from weak efficiency in the form of predictability or returns on the basis of their own past values. Over the period as a whole this was most marked for the B shares in both the exchanges and absent altogether in the index for the 30 leading stocks on the Shanghai market, suggesting that previously reported predictability simply reflects thin trading. We also find evidence that efficiency suffered when banks were excluded from the stock market in 1996 and efficiency improved when they were re-emitted in early 2000. We also find widespread evidence of the day-of-the-week effect as others have before us. Interestingly, we found this effect to have completely disappeared after 1999. In the area of semi-strong market efficiency, we found predictability from the predicability from the A to the B board returns in Shanghai but no evidence of cross-board causality in Shenzhen.

Suggested Citation

  • Nicolaas Groenewold & Sam Hak Kan Tang & Yanrui Wu, 2001. "An Exploration of the Efficiency of the Chinese Stock Market," Economics Discussion / Working Papers 01-13, The University of Western Australia, Department of Economics.
    • Handle: RePEc:uwa:wpaper:01-13
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    References listed on IDEAS

    as
    1. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    2. Qi, Daqing & Wu, Woody & Zhang, Hua, 2000. "Shareholding structure and corporate performance of partially privatized firms: Evidence from listed Chinese companies," Pacific-Basin Finance Journal, Elsevier, vol. 8(5), pages 587-610, October.
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    Cited by:

    1. Groenwold, Nicolaas & Tang, Sam Hak Kan & Wu, Yanrui, 2004. "The dynamic interrelationships between the greater China share markets," China Economic Review, Elsevier, vol. 15(1), pages 45-62, January.
    2. Dayong Zhang & David Dickinson & Marco R. Barassi, 2006. "Structural Breaks, Cointegration and the B Share Discount in Chinese Stock Market," EcoMod2006 272100108, EcoMod.
    3. Daxue Wang, 2006. "Cross-Autocorrelation of Dual-Listed Stock Portfolio Returns: Evidence from the Chinese Stock Market," Computing in Economics and Finance 2006 182, Society for Computational Economics.
    4. Xu, Lilai & Oh, K.B., 2011. "The stock market in China: An endogenous adjustment process responding to the demands of economic reform and growth," Journal of Asian Economics, Elsevier, vol. 22(1), pages 36-47, February.

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