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Multiscaling and Stock Market Efficiency in China

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  • Thomas A. Thiele

    (School of Management, Walden University, Minneapolis, MN 55401, USA)

Abstract

China has taken important steps to reform its economy and capital markets in the past 20 years. Despite these efforts there is a lack of quantitative evidence on how these measures have impacted price returns in the stock exchanges. The purpose of this research was to determine the randomness of Chinese equity returns and to measure the scaling property of volatility over time. The main assumption of the Efficient Market Hypothesis is that security returns follow the path of a random walk and that volatility scales with the square root of time. This notion was tested by analyzing daily stock returns of the Shanghai- and Shenzhen Composite Indexes between 1990 and 2013. The Kolmogorov–Smirnov (KS) test rejected the log-normal distribution and random walk hypothesis. The measuredHurstexponents revealed a multiscaling property of fractal Brownian motion and indicated the presence of long-range dependence. The findings also showed that the degree of persistence and cycle length has reduced over time.

Suggested Citation

  • Thomas A. Thiele, 2014. "Multiscaling and Stock Market Efficiency in China," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 17(04), pages 1-22.
    • Handle: RePEc:wsi:rpbfmp:v:17:y:2014:i:04:n:s0219091514500234
    DOI: 10.1142/S0219091514500234
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    References listed on IDEAS

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    1. Dongwei Su, 2003. "Chinese Stock Markets:A Research Handbook," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 4602, August.
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    Cited by:

    1. Ma, Pengcheng & Li, Daye & Li, Shuo, 2016. "Efficiency and cross-correlation in equity market during global financial crisis: Evidence from China," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 444(C), pages 163-176.
    2. Qi Deng & Zhong-guo Zhou, 2016. "The pricing of first day opening price returns for ChiNext IPOs," Review of Quantitative Finance and Accounting, Springer, vol. 47(2), pages 249-271, August.
    3. Oksana Kim, 2016. "Market Efficiency and Arbitrage Opportunities for Russian Depositary Receipts Cross-Listed on the London Stock Exchange," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(02), pages 1-36, June.

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    More about this item

    Keywords

    Hurstexponent; rescaled range analysis; efficient market hypothesis; long-range dependence; multiscaling; Shanghai Stock Exchange; Shenzhen Stock Exchange;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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