China Convertible Bond Market Weak-form Efficiency Of Empirical Research

Convertible bonds have been developing in China since the first convertible bond was found in Aug, 1991. There are 43 convertible bonds have been issued and more than 47.8 billion been raised up to Dec 31th, 2005. Convertible bonds begin play an important role in the security markets of China. But looking back the developing history of convertible bond market in China, we can find a lot of programs in the convertible markets.Efficient Market is defined formally by 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 forms 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. So the significance on this research is great in theory and reality.The question of whether or not China's convertible bonds 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 five parts as follows:In the first part, we review simply the developing history of China's convertible bonds markets.In the second part, the origin, definition, forms, and development of efficient market theory are briefly introduced. The researches on China's capital market have been carried on are introduced too.In the third part, some empirical tests methodology and literatures on the research market theory are briefly introduced. We analyze weak-form market efficiency by correlation test, run test and variance ratio test simultaneously. According to the results of this study, Given the 5% level of significance, someevidences showed the China's Convertible bond market couldn't reach weak-form efficiency.In the fourth part, the question why China's convertible bond market couldn't reach weak-form efficiency have been found and analyzed.In the last part, we table some proposals that will contribute to improving of the efficiency of China's convertible bond market.It is interesting that the empirical test results is each kind of model cannot refuse the null hypothesis of random walk in the year of 2001 and 2002. Actually, in that two periods China's convertible market developed badly. But each kind of model refuse the null hypothesis of random walk even if China's convertible market developed rapidly in the years of 2003 and 2004.Allow for the reality, we can draw a final conclusion as follows:a. Basically, China's overall convertible bond market couldn't reach weak-form efficiency.b. It is difficult to accept that China's convertible bond market reached weak-form efficiency even if the data accept null hypothesis of random walk.