Testing the Weak Efficient Market Hypothesis of Chinese Stock Market--Based on the Market Performance of Representative Stock Investment Portfolios in the HS300 Index

Abstract

Chinas domestic stock market has developed very quickly overall in the more than 30 years since it was established, but information effectiveness in the Chinese stock market still faces multiple problems, so testing the weak efficient market hypothesis of the Chinese stock market is a good way to test its information quality and give investors relevant advice. This article selected representative stocks from the HS300 index, gathered the stocks historical data, used the index model to construct an optimal portfolio, and used another part of historical data to test if the portfolio has continuous excess return compared with the market portfolio and risk-free asset. The article finds excess return for the optimal portfolio during a long period and cannot prove that the Chinese stock market is weak and efficient. This result will provide a certain theoretical basis for investors who use technical analysis for stock investment and may also indicate that many issues still need to be addressed in the Chinese stock market, such as information asymmetry, high transaction costs, and insufficient regulation.