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

Guoxi Duan () and Hisashi Tanizaki
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Guoxi Duan: Graduate School of Economics, Osaka University

No 21-22, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

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.

Keywords: stock market; market efficiency hypothesis; random walk; investment strategy; hypothesis test (search for similar items in EconPapers)
JEL-codes: C12 G12 G14 (search for similar items in EconPapers)
Pages: 34pages
Date: 2021-12
New Economics Papers: this item is included in nep-cwa and nep-fmk
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