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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Asian Economics, Volume 14, Issue 4, August 2003, Pages 593–609
This paper examines the weak market efficiency and the role of the banks in the Chinese stock market. We consider both A and B shares traded on the Shanghai and Shenzhen stock exchanges using daily data for seven indexes for the period 1992–2001. We begin by an examination of the weak EMH and find evidence of departures from weak efficiency in the form of predictability of returns on the basis of their own past values. Over the period as a whole this was most marked for the B shares in both the exchanges and absent altogether in the index for the 30 leading stocks on the Shanghai market, suggesting that previously reported predictability may simply reflect thin trading. We go on to examine whether the efficiency was affected when banks were excluded from the stock market in 1996 and subsequently re-admitted in early 2000. We find that efficiency tended to be adversely affected when the banks were excluded.
There is a growing literature demonstrating the importance of the financial system in the process of economic development—the financial system provides a mechanism whereby the resources available for financing new capital expenditure (domestic saving and net capital inflow from abroad) are distributed amongst competing ends.1 Competing projects differ both in their expected returns as well as in risk and it has long been a central tenet of financial economics that an efficiently operating financial market optimally balances risk and return in funds allocation. Thus the investigation of the efficiency of financial markets has been an important preoccupation of empirical financial economics and much of the literature has focussed on the efficiency of the stock market. China’s stock market is a relatively new but increasingly important part of the Chinese financial system which is undergoing a structural shift from a heavily-regulated and almost exclusively bank-based system to one with much greater diversity of institutions including a vigorous and increasingly sophisticated stock market. The two official stock exchanges, the Shanghai Exchange and the Shenzhen Exchange, were established in December 1990 and July 1991, respectively. Since their establishment, the two exchanges have expanded rapidly and have operated in a continually changing regulatory environment. China’s stock market is now the second largest in Asia, behind only Japan. The speculation is that China’s securities market has the potential to rank among the top four or five in the world within the coming decade (Ma & Folkerts-Landau, 2001). Yet little is known about this relatively young player in the global community. In this paper we investigate the efficiency of the Chinese stock market. In the literature of financial economics, efficiency has come to take on a specific meaning following the work particularly of Fama, 1970 and Fama, 1991. Fama defined efficiency as the ability of the market to rapidly digest new information so that securities’ prices would at every point in time incorporate all relevant available information. This has become known as the efficient markets hypothesis (EMH) and an arbitrage argument is used to show that the EMH implies the absence of predictability of asset prices—if prices were predictable, profits could be made on the basis of the predictability and arbitrage would eliminate these profits in an efficiently operating market. It is this unpredictability implication of the EMH which is most commonly tested in the empirical literature. In our investigation of the efficiency of the Chinese stock market, we focus on the interplay between market efficiency and changes in regulation. In particular, we examine the impact of the banks on market efficiency. This is an important question since the banks have a traditional and dominant place in the financial system and have for much of the 1990s been important sources of funds (and other influence) for the stock market. Interestingly, there have been two distinct changes of government policy in relation to the banks’ role in the stock market and these provide a useful opportunity to assess the implication of the banks to the efficiency of the system in the Fama sense. We contribute to the literature first by re-examining the weak form of the efficient markets hypothesis (WEMH) using daily Chinese stock market data. While numerous studies have addressed issues in this area in the recent past, we extend the existing studies in several ways. First, this study is based on a much more extensive database. Previous studies focussed on the initial years immediately after China’s two stock markets were established in 1991 and often analysed relatively few indexes. We analyse daily data for seven share price indexes over the period 1992–2001. This large sample provides us with a greater variety of information and should reflect the dramatic changes that have taken place in China’s securities sector in the past decade. An interesting component of our data set is the index for the 30 leading shares on the Shanghai exchange, the analysis of which allows us to throw light of the question of the influence of thin trading on efficiency tests. Our second contribution is to the literature on the effects of deregulation on the operation of the stock market. This growing literature can be seen as part of the broader work on financial deregulation and development referred to above (see footnote 1). Little emphasis so far has been on the interaction between deregulation and efficiency and it is to this area that we contribute by testing whether changes in the role of Chinese banks in the stock market influenced the efficiency of the market.2 We do this by investigating efficiency over three different sub-periods in which banks were subject to different regulations insofar as their relationship to the stock market was concerned. Tests of weak efficiency which we use include autocorrelation tests and autoregressive models which are extended to include “day-of-the-week” effects and holiday effects. We also test the random-walk version of the EMH by testing the log of the share price indexes for stationarity.3 In the rest of the paper we begin with a brief literature review and description of the structure of the markets in Section 2, we set out the modelling issues in Section 3, describe the data used in Section 4 before going on to present results of an investigation of efficiency in Section 5. In Section 6, we investigate the impact of the changing role of the banks on market performance. Conclusions are set out in Section 7.
نتیجه گیری انگلیسی
This paper has explored weak efficiency in the Shanghai and Shenzhen stock markets and the relationship between efficiency and changes in the regulations concerning the role of the banks in the stock exchanges. We found that there was evidence of departures from weak efficiency in the form of predictability of returns on the basis of their own past values as well as systematic day-of-the-week and holiday effects. Over the period as a whole predictability was most marked for the B boards in both the exchanges and absent altogether in the index for the 30 leading stocks on the Shanghai market. These results suggest that much of the apparent predictability simply reflects thin trading so that there may be little if any unexploited profits in this predictability. Our findings on the day-of-the-week effect was consistent with what others have found before us, particularly that there are lower than average returns on Tuesdays. Interestingly, we found this effect to have completely disappeared in the 2000–2001 part of our sample period. We found little evidence of a holiday effect with only the Chinese New Year effect being significant and that only in the last of our three sub-samples. We also found evidence that efficiency suffered when banks were excluded from the stock market in 1996 and efficiency improved when they were re-admitted in early 2000. We offered a tentative explanation in terms of liquidity given the traditionally dominant role played by the banks in the Chinese financial system—when the banks were excluded liquidity suffered and information transmission was less efficient and this process was reversed in 2000. Clearly this hypothesis needs more exploration with more disaggregated data.