Semi-strong Efficiency Of The Chinese Stock Market Research

Whether financial market is semi-strong efficient is important to finance theory and practice. Neo-classical financial theory suggests that non-arbitrage law makes no arbitrage opportunities in the financial market, so the stock price equals the stocks's fundamental value. If EMH holds, we get MM theory, capital asset pricing model (CAPM), consumption based capital asset pricing model (CCAPM). However, behavioral finance theory suggests that because of investors'irrationality and limits of arbitrage, market is not semi-strong efficient, and we need a new perspective to study financial markets. In practice, if the financial markets are semi-strong efficient, and government regulates insider trading effectively, then the investor should copy the market portfolio. However, if the market is not semi-strong efficient, investors can benefit from analyzing public informationWith significant development since its establishment, Chinese stock market has been an integral part of the capital market. With the improvement of institutions and regulation efficiency, as well as the learning of investors, the Chinese stock market's information efficiency improved. Today, a widely accepted conclusion is that Chinese stock has achieves weak market efficiency. Whether it achieves semi-strong efficiency still needs further research.The study on the semi-strong efficiency state of China's stock market can verify the efficient market hypothesis. Analysis on the Chinese stock market investors behavioral characteristics can contribute to the study of Chinese financial markets operation and macro-economy. Meanwhile, the analysis of the efficiency of China's stock market can also provide reference for investors.Event study has been widely used to examine semi-strong efficiency of the stock market. Implementing event study to study stock market's semi-strong efficiency requires events without new information. The non-tradable shares unlock after China's share reform provides a scarce event. The reactions of stock prices in China to monetary policy give another perspective to study the semi-strong efficiency of China's stock market.Our study shows the following results.First, Chinese stock market has downward sloping demand curve which shows China's stock market has not yet achieved semi-strong efficiency. Meanwhile, the highly speculative character of China's stock market makes resale option effect play an important role in the stock prices. Second, the response of stock price to the impact of monetary policy shows that, even the expected information still have impact on stock prices and the stock price reaction to the impact of monetary policy is a continuous process.This further demonstrates that Chinese stock market has not achieved semi-strong efficiency.Third, studies show that, there are bubbles in the Chinese stock market. The existence of stock price bubbles in the Chinese stock market means that there is no effective arbitrage mechanism to ensure semi-strong efficiency.