A Test Of The Efficiency Of China Stock Market

This paper can be divided into two parts:first, the Event-study Methodology is adopted to analyze the rail accident effectiveness; second, relevant policies are investigated to analyze the change of the concept of Chinese economic development.Capital market, as one of the key sectors in modern economy system, has the function of company’s financing and efficiently allocating economic resources. To function well, the efficiency of the capital market is very important. Base on the Efficiency Market Hypothesis (EMH), the efficiency of capital market can be divided into three kinds:weak efficiency, semi-strong efficiency and strong efficiency. The existing literature shows that China’s capital market is weak efficient. But it is not semi-strong efficient. The existing literature concerning semi-strong form tests have a common drawback:information leakage.A terrible rail accident happened in Zhejiang province on July23rd,2011. On the one hand this accident is a disaster; on the other hand, it offers one opportunity for us to investigate the semi-strong form test under an accident. The rail accident is unpredictable, so the information it contains cannot be leaked ahead. Additionally, the rail accident affects the stares of all the high-speed rail related company. So it is appropriate to take the rail accident as the case in the event study of semi-strong test. The State Council meeting announced a decision on August10th,2011, which shows that the progress of China’s high-speed rail construction should be slowed down. This announcement also impacts the high-speed rail related company.By using the method of event study, the paper studies the impact on the market of7.23rail accident and8.10announcements. The results show that there is no advanced-reacting and over-reacting for the former, but it is not the same for the latter. Most of the existing literatures with over-reacting always find that there is advanced-reacting. So the information leakage plays a crucial role in the semi-strong efficiency. Maybe this is the just reason why the existing literatures conclude that China’s capital market is not semi-strong efficient.The rail accident is a warning for the extraordinary development of China’s high-speed rail constructions. It also arouses thinking about changing the mode of concept of Chinese economy development. In July of2011, Premier Wen Jiabao said that it is not the faster the better for China’s high-speed rail constructions. Safety should be put in the first. In April of2012, when he is inspecting in Guangxi and other places, Premier Wen said, we need to take a comprehensive view on the development of China’s high-speed rail. This paper studies the two speech’s impact on the high-speed rail related company, and analyses the change of the concept of Chinese economic development.