Is the Chinese stock market efficient? Evidence from a combined liquidity trading strategy

Abstract

Purpose

This study examines the stock market efficiency in China to offer trading strategy guidance to investors and efficiency evaluation insight to policymakers.

Design/methodology/approach

This study examines the stock market efficiency in China with a new combined liquidity trading strategy by blending technical analysis into a liquidity buy-and-hold strategy.

Findings

Our results show that the combined strategy generates significant excess returns in the whole sample period, suggesting that the Chinese stock market is not consistent with the weak form efficient hypothesis. In addition, the combined strategy yields more significant risk-adjusted excess returns after the 2004 split-share reform, indicating the stock market efficiency in China does not exhibit a distinct upgrade after the reform. Our further test results reinforce the main conclusions after taking transaction costs, market states, short-selling reform and other issues into consideration.

Originality/value

Our study contributes to the literature in two ways: First, we shed light on the mixed documented results about the market efficiency form in China. Second, we contribute to the mixed relation between the 2004 split-share reform and market efficiency in China.

Citation

Yu, B. (2024), "Is the Chinese stock market efficient? Evidence from a combined liquidity trading strategy", China Finance Review International, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/CFRI-01-2024-0011