The stock price behaviour of Chinese markets : a preliminary study

Abstract

The emergence of the Chinese equity markets provides new

opportunities for investors to participate in the economic boom in China.

These markets exhibit high expected returns as well as high volatility. This

research examines the daily return behaviour of the four China share

indices: the Shanghai A-share Index, the Shanghai B-share Index, the

Shenzhen A-share Index, and the Shenzhen B-share Index.

By using daily data of these share indices from March 1993 to December

1994, the results show that weak form efficiency does not exist in the Bshare

markets. Segmentation is found between the two B-share markets

but not the A-share markets. This gives evidence that macro-economic

factors of China affect the two A-share markets concurrently.

There is evidence that the returns of the A-share indices lead the returns

of the B-share indices. As for the two A-share markets, it is found that the

Shenzhen A-share returns lead the Shanghai A-share returns but not vice

versa. Both the B-share returns are shown to have bi-directional lead-lag

relationship.

This research further extends the analysis between the B-share indices

with the Standard and Poor's 500 Index and the Hang Seng Index. No

correlation exis ts between the China markets and the two foreign markets. It is found that the returns of the foreign markets do not lead the

B-share markets.