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An Exploration of the Efficiency of the Chinese Stock Market

  • 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)

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.

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Paper provided by The University of Western Australia, Department of Economics in its series Economics Discussion / Working Papers with number 01-13.

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Length: 33 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:uwa:wpaper:01-13
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  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 1057-72, 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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