Has Stock Market Efficiency Improved? Evidence from China

Abstract

Stock market has been associated with economic growth through its role as a source of new private capital. On the other hand, economic growth may be the catalyst for stock market growth. The purpose of this paper is to investigate the efficiency of the two official stock markets in China. The sample includes the daily closing prices of A-share and B-share indexes in both the Shanghai and Shenzhen stock exchanges for the period of January 1st, 2006 to December 31st, 2010. Three different approaches are employed; namely, serial correlation test, runs test and variance ratio test. Statistical evidence from serial correlation test shows that returns are correlated in both Shanghai and Shenzhen indexes and therefore the markets are weak-form efficiency.