Comparative Study of Market Inefficiency on the Sino-U.S. Stock Markets
In this paper, we consider an autocorrelation of stock returns as a good proxy of degree of market inefficiency when we deal with the EMH in the weak sense. We check a time varying structure of autocorrelations of stock returns data based on the Moving Window method and estimate the time varying AR(1) coefficients by using a state space model. We use the monthly returns for the Shanghai A-share Index, B-Share index and S&P500 stock Index from 1992 to early 2012 as a sample. The result shows: the degree of market inefficiency varies through time; on the degree of market inefficiency, the Chinese stock market is greater than the U.S. stock market, A-share market is greater than the B-share market, and the market inefficiency between B-share market and the U.S. market has some linkage. Finally, we calculate the numerical measurement of relative market inefficiency on the Sino-U.S. Stock Markets.
KeywordsEfficient market hypothesis Market inefficiencies Sino-U.S. stock markets Time-varying AR model State space model
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National Natural Science Foundation of China (NSFC) under project No. 70873115 and 71173203. The authors appreciate the support from National Natural Science Foundation of China (NSFC) under project No. 70873115 and 71173203. We are also thankful for the funding provided by Key Universities Research Institute of Humanities and Social Sciences in Zhejiang Province, China. Standardization and Intellectual Property Management.
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