A Study on the Efficiency of Stock Markets in China: Comparative Analysis among Three Exchanges

Abstract

This paper examines and compares the efficiency of the Chinese stock exchange markets with its Shanghai, Shenzhen and Hong Kong stock exchanges for the period 2016-2018. The daily returns of the market indices and 30 stocks including the top 10 largest market capitalization stocks in each market are used to test the random walk hypothesis using the Lo-MacKinlay variance ratio tests and multiple variance ratio tests. The results of the study reveal that the daily return of Hong Kong stock market index followed the random walk process while the indices of the two mainland stock markets are believed not to follow the random walk, indicating that the Hong Kong stock market is weak-form efficient while the two other stock markets are not. As for the individual stocks listed on the three stock exchange markets, all the sample stocks in the Hong Kong stock market are shown to be weak-form efficient whereas evidence of weak-form informational inefficiency was found in sample stocks in both Shanghai and Shenzhen stock markets.