Study On Market Efficiency Of Chinese Convertible Bond

Convertible bonds (CB), which is between stocks and bonds, are of great flexibility because of its unique option, equity and credit. CB, as a new financial tool in China after stocks and common bonds of companies, have become a crucial part of securities business and are playing an increasing important role. Until Dec31, 2007, after 17 years'development, 62 convertible bonds have been issued in China, which amounts to 73.944 billion RMB yuan. Thus, the CB market has come into being. However, owing to its initial stage, there are a lot of problems, such as the imperfect laws and regulations, policies and systems, immature investors, etc.. On the whole, this market is of low efficiency.Market information validity is not only the basis of financial economics, but also of great practical significance. On the macro level, market efficiency relates directly to investors'interests and the supervision policies of the government; on the micro level, it determines the investing strategies of investors. Plenty of evidences demonstrate that a survey of the efficiency of the CB market in China is urgently needed so as to provide beneficial references for investors and supervisors in China. Therefore, researches on CB market efficiency will help to promote the sound development of the CB market in China and improve the efficiency of collocation of capital market resources.In order to understand on what efficiency level the CB market in China is, this thesis first introduces the background and reviews the research of efficient market at home as well as abroad. Next, it discusses about the content, defects and challenges of efficient market hypothesis so as to provide a theoretical model for the demonstration research. This paper mainly employs the verification methods of weakness validity research of securities business, such as unit root test, serial correlation and run test, to test the efficiency of the CB market in China and then reaches the conclusion that the CB market in China is of low efficiency. Lastly, after analyzing from various angles the causes of invalidity according to the research conclusions and the actual condition of the CB market in China, this thesis brings forward some suggestions of improving CB market efficiency.