Market Efficiency In Chinese Stock Market: Analysis And Empirical Study

The subject of my PhD. Dissertation is on the market efficiency of Chinese Stock Market.Since the establishment of Shanghai Securities Exchanges in 1990 and Shenzhen in 1991, China's stock market recorded impressive growth in its first decade. Both markets have enormously grown in terms of the number of companies listed and market capitalization. Only after 11 years' development, listed companies exceeded 1, 100, which makes Chinese stock market No.6 in the world in the aspect of numbers of listed companies.In my research, market efficiency is divided into information efficiency and resource allocation efficiency. Information efficiency refers to the efficiency market hypothesis (EMH), which has been one of the most popular research areas in finance. The general conclusion from numerous studies in developed countries, beginning with Fama (1970) is that the weak form of market efficiency holds. Fama hypothesized that if a market is weak form efficient, the historical information of past prices cannot be used to exploit a regular return pattern for obtaining abnormal returns. Based on the Fama's framework, my research applies it to the empirical studies of Chinese Stock Market.From my research, Chinese Stock Market has been week-form efficiency since 1997.After 1997, the weekend effect disappeared and technical analysis becomes unusefulness. I also exam prices reactions to stock dividend announcements and earnings announcements. The conclusion is that Chinese Stock Market is not semi-strong efficient. My research finds the strong evidence of the existence of insider trading.Chinese government plays an important role, its intervene strongly affects markets.Besides,I find fractal structure in Chinese markets; there are memories in stock returns.As to the research of allocation efficiency. I find that the stock prices in secondary market have little correlation with the company' earnings and mainly influenced by the market fluctuation and the switch of market hits. Besides, I find strong evidence of bubbles in Chinese stock Markets. In conclusion, the allocation efficiency is quite low.The dissertation is composed of preface and eight chapters; the main contents in each chapter are as follows:Chapter One reviews the history of the Chinese Stock Market and points the main problemswhich include non negotiating of state-owned shares; the low quality of listed companies;the unified market; and security regulation.Chapter Two is about the theories of market efficiency. I make paper reviews and givemathematics describe of the definition.In Chapter Three, I do empirical analysis of weak form efficiency of the market. And inthe following Chapter Four and Five, Semi-strong efficiency (event study) and Strongform efficiency (insider trading test) has been tested.Chapter Six applies the challenging theory - fraction theory to the analysis of the market.And the conclusion is that Chinese stock Market is a fractional random walk.Chapter Seven discusses allocation efficiency of the market.Chapter Eight puts forward some suggestions.With such wide-ranging and complex theories and practice in stock market, my papermakes a systematic and in-depth study only from specific aspect- market efficiency and the efforts in innovation are still limited. Further researches are needed.