Study Of The Efficiency Of Capital Market Pricing

Many people understand the concept capital market efficiency from very different angles. Most of them, however, neglect the initial connotation of capital market efficiency more often when they review it from spontaneous intention. Flaws in theory do harm to practice, and lead many empirical researches go in wrong ways. The capital market in China is in the ascendant, and it urgently demands the theoretical guidance. Therefore the main tasks for us are to assimilate and absorb the achievements having been developed; correctly understand the theories, further more guide practice and strive for some innovation. Motivated by these desires, this paper has done the following work:I.Expounding the concept of pricing efficiency systematically. At present, the researches about pricing efficiency are all based on efficient market hypothesis (EMH ) both at home and abroad. But many researchers do not truly understand EMH, and many concepts have not been clarified, even the existence and tenable conditions of EMH have not been fully understood. At first, this dissertation systematically expounds the origin and initial connotation of EMH. Beginning with the initial connotation, the paper discriminates different views about the efficiency of capital market. Then the article puts forward its own viewpoints about the challenges from both theory and practice. Finally, the article discusses the existence of efficient market and integrally grasps the true connotation of efficient market theory.II .Establishing the relationship between pricing efficiency and efficient market. In fact, the efficiency of capital market means that equilibrium price is efficient to information. But this concept has different connotations because researchers do not understand and use it in according to its original meaning, and, on the contrary its original meaning has been neglected. Beginning with the original meaning of efficient market, the paper puts forward and discusses the connotation of pricing efficiency and the relation between pricing efficiency and efficient market. Finally, on the basis of the discussion about functions of capital market, the article discusses the importance of pricing efficiency.III.Introducing and evaluating the extant pricing theories systematically. At present, the dominant pricing theories both an home and abroad are capital assets pricing model (CAPM) and arbitrage pricing theory (APT) = The inference about these pricing theories is all from the perspective of the side of demand, which may give an impression of losing contact with reality. Thus the paper raises the idea that comprehends and uses the theories from the angle of the side of supply and efficient market.IV.Excavating the deeper factors that affect the pricing efficiency. The article shows that there are four fundamental factors to determine pricing efficiency: the perfection of information, the traders' reason, market competition and market friction. Therefore the paper deeply explores the mechanism of these four factors influencing pricing efficiency. The article considers these discussions as deepening of cognition about efficient market.V. Establishing a systematical frame and a model to test the efficiency of market. According to this article's research and relative literatures, the test of market efficiency must combine the test of price time series' statistical properties with pricing models. This paper clarifies the internal relationship between EMH, CAPM and APT, and establishes an APT model containing GARCH.VI .Putting forward systematical policy suggestions to improve Chinese capital market efficiency. According to the analysis in Chapter IV about the fundamental factors influencing pricing efficiency, combining the practical observation, and using relative research achievements at home and abroad for reference, this article puts forward a policy frame to improve Chinese capital market efficiency.