China's Stock Market Efficiency Study

The proposal of efficient market hypothesis (EMH) as a milestone event has been meaning extremely important to financial markets. Efficient market is not only the symbol of how the financial markets have developed but also their terminal objectives. EMH, which has been one of the most important modern financial theories, has successfully explained the mechanisms of pricing in financial markets and consequently supplies useful analytical tools for academic area and industry. In conclusion EMH has been committing tremendous contributions to positioning and development of financial markets of western countries.Since Shanghai Stock exchange and Shenzhen Stock Exchange was built at the beginning of the 1990s, China stock markets have developed very quickly especially after the split equity structure reform. Recently more and more scholars begin to do empirical research on China stock market efficiency. However, owing to discrepancies of research methods and angles the outcomes are quite different. In order to evaluate the development degree of China stock markets scientifically it is necessary to do again the systematical research on market efficiencies of the latest China stock markets.This paper is based upon the integrated system of market efficiency theory and comprises four parts. First part, it introduces systematically the EMH from these aspects such as its development, assumptions, contents, versions and so on. Second part, it summaries both domestic and overseas related literatures, classifies them according to conclusions and lists the sample data, models and meanings of former researches. Third part, the central part, it respectively tests the weak-form and semi-strong-form efficiency of the latest Shanghai and Shenzhen stock markets and draws conclusions. In the weak-form efficiency tests it uses both serial correlation and non-parameter methods. In the semi-strong-form efficiency tests it uses event study method. Every time after empirical tests it evaluates the testing methods and the credibility and correctness of the conclusions. Four part, based upon conclusions it analyzes the logic behind and provides several suggestions on the development China stock markets.