China's Stock Market Efficiency And Resource Allocation Efficiency Of Empirical Research

China's stock market has been one of the most rapidly developing and largest emerging markets in the world since its establishment in the middle of 1990s, particularly since the successful implementation of equity redistribution reform. Stock market is a vital component of economy because it plays very significant roles in the economic development especially facilitating finance, boosting the system reform of state-owned enterprises and the establishment of capital market. Therefore, whether the stock market can function efficiently, if so, to which extent, in the price-finding and channeling financial capital into the most important industries and sectors will affect greatly not only the results and states of capital market in finance and allocation scarce resources of the society but also the sound, stable and sustainable development of capital market which has substantial impact on the level and speed of the entire economy. With the rapid expansion in quantity of listed companies and accelerating strengthen in scale of stock market the issue concerning efficiency of China's stock market has drawn more and more attentions of both financial academic fields and stock practitioners field.It is understandable and unquestionable that both domestic and foreign documents on the analyses about the efficiency of stock markets mainly centre at studying the market efficiency i.e. preferring the efficiency of secondary market because it is the price-finding function of secondary market that determines the efficiency of pricing and allocation of primary market under the market-geared pricing system of initial public offerings. However, China's stock market is a little different from its foreign more mature counterparts because prior to 2001 it adopted the government-controlling pricing system and after that year the process of preliminary market-geared pricing system did not go so smoothly and regularly. Hence, this paper thinks that it is essential attentions be focused on both markets because it is not enough to merely investigate and test the efficiency of secondary market but neglect the study of primary one and moreover the efficiency of financial market is reflected by the resultant efficiency of resource allocation. Accordingly,this paper begins with the information efficiency of secondary market as well as the efficiency of resource allocation of primary market in the hope of a more comprehensive investigation of the entire efficiency of China's stock market.The empirical study of the information efficiency of China's stock market indicates it has the characteristics of weak efficient market from 2001 which implies that it does not reach the level of semi-strong efficiency though the efficiency has been enhanced since 2001.However, the empirical analysis of the allocation efficiency of resources evidences that the overall level is comparatively low and the study based on multi-staged basis indicates that the above conclusion still holds after the implementation of market-oriented offering system i.e. system of approval regardless of improved efficiency. The reasons for so great gap in efficiency between the two markets are, according to this paper, the dysfunction of the channeling mechanism between the two markets, and potential problems arising from simply applying the theory of efficiency to the explanation for the efficiency of the two markets. The conclusion of this paper is reached in the end that the overall efficiency of China's market is still low as the efficiency of financial market is determined by the efficiency of resource allocation ultimately. Therefore, how to enhance the market efficiency is of critical importance for the sound development of China's stock market in a fairly long period of time in the future.