China's Stock Markets Weak Form Efficiency Empirical Research

Efficient Market Theory (EMT), also called Efficient Market Hypothesis (EMH), is the foundation stone of modern finance theory. Because of its theoretical and practical significance, it attracts more and more theoretical and empirical researches. Chinese stock market was founded in the early 1990s and has gained many achievements in its development. Since Chinese stock market is fast-developing, it has its own characteristics. This paper mainly concerns the efficiency of Chinese stock market from the prospect of information transmission and corresponding stock price changes. Firstly, we introduce the definition of EMH and its empirical researches. We also show that EMH is facing more and more challenges from anomalies of stock market. Secondly, EMH states that stock prices react quickly to new information. If so, the price time series should not correlate with each other. We find that there exists significant autocorrelation among large-and small-cap portfolios in Chinese stock market. Our empirical research also concludes that the significant autocorrelation is not the reason of profitability of contrarian strategy in Chinese stock market. Thirdly, stock prices should fully reflect all information, and there should not exist long-or short-term memory in return time series if EMH stands. Our empirical research finds strong long term phenomenon in different sector portfolios in Chinese stock market. Fourthly, we find that Chinese stock market exist the negative relation between portfolio risk and return, which brings new evidence of inefficiency of Chinese stock market. Finally, we conclude our work in the final part.