Stock Market Weak Form Of Empirical Research

Efficient Market is defined formally by Eugene F. Fama who was an American professor in finance. The definition is widely recognized by public means in which market the price of a financial asset reflects all the information available and responds only to unexpected news. In an economic sense, no one can always gain excess profit in an efficient market.There are three form of efficient market in Efficient Market Hypothesis: weak-form efficiency market, semi-strong efficiency market and strong efficiency market. Researches on domestic capital market have been carried on for about ten years. The efficiency of capital market has a significant influence on investors in their investment principal and method, on the government on its objective and way of governance. Besides, efficient market hypothesis is a foundation of modern asset pricing theory, while there are many disagreements on market efficiency. So the significance on this research is great in theory and reality.The question of whether or not China's Stock Markets are efficient is best answered by a comprehensive and concurrent analysis of the standard tests and various types of data available while using the largest possible sample sizes. The thesis is comprised of three parts as follows:In the first part, the origin, definition, forms, development and challenges it faced of efficient market theory is briefly introduced.In the second part, some empirical tests methodology and literatures on the research of efficient market theory.In the last part, simultaneously analyzed three types of weak-form market efficiency tests-auto regression, run tests and variance ratio test for various data frequencies, perform the tests on both the Shanghai and Shenzhen markets for a period of more than six years.According to the results of this study, given the 1% level of significance, the Shanghai and Shenzhen stock market is weak-form efficient in the overall market and A-share market, while the B-share market is not weak-form efficient. Given the 5% level of significance, some evidences showed the Shenzhen market and A-share market couldn't reach weak-form efficiency completely. So a conclusion can be draw that Shanghai stock market is more efficient than Shenzhen stock market since 1996.It is interesting that the empirical test results is identical with three kind of testing models while employed the monthly data. Each kind of model cannot refuse the null hypothesis of random walk, which may mainly due to the monthly data is very short.The final conclusion of this study is as follows:a. Basically, China's overall stock market is weak-form efficient since 1996; A-share market is more efficient than B-share market; Shanghai stock market is more efficient than Shenzhen stock market.b. It is difficult to refuse null hypothesis of random walk when employing monthly data in empirical test.