The Empirical Study On Efficiency In Chinese Capital Market

The efficiency of capital market is one of the basic issues in the financial research. Many overseas and domestic articles have made studies on it. With the theoretical foundation of Efficient Market Hypothesis, this paper demonstrates the theory background, main ideas and theory prerequisites of the theory and then gives weak-form efficient testes on the daily indexes of stock market in China. The sample is including the Shanghai Composite Index form 2001 January to 2007 March.In an efficient capital market, the expected return obtained from any trading rules cannot be better than buy-and-hold strategy. In is paper, filter rule of buy-long is used as the basis to test whether filter rules can get excess return and whether China stock market can support weak-form efficiency or not. What is more, selection bias, non-synchronous trading and trading cost has been taken into consideration while test. Based on the tests above, it is concluded that in general the index of the stock market of China is not in agreement with normal distribution, contradicting the prerequisites of Efficient Market Hypothesis. In another word, this paper shows that Chinese stock market is not weak-form efficient yet.It also analyzes the reasons why the effectiveness of the stock market of China is low and put forward several suggestions for government to improve the effectiveness of the stock market, hoping to be able to provide basis for management and strategies for macro administers, to provide reference for the broad masses of investors to make suitable investment policies. And there are three main reasons for low efficiency. The first of them is the structure of stock is not reasonable .It has been changed in 2006 but seems not enough. The second reason is the system of publicizing information still remains to be perfected. The third one is that the irrational structure of investors which in this paper means the limits of retail investors. Direct to these reason, this paper raise up three many suggestion. The first one is improving the Legal system on stock market step by step. The second suggestion is promoting the application of XBRL (eXtensible Business Reporting Language) as a part of information publicizing system. The last one is encourage more kinds of institutional investors instead of retail investors to show their born advantages.This entire paper try to do, is to introduce a new way to test weak-form efficiency and put it into use on the samples from Chinese stock market. So it can get a conclusion more exactly and more clearly. Only through this way, the following analyze can be reasonable and suggestion for government can really suit to the condition of our stock market.