Persistence Characteristics of the Chinese Stock Markets
Cornelis A. Los
Alliant School of Management; EMEPS Associates
Kent State University
August 15, 2005
This paper identifies such fundamental characteristics as the lack of ergodicity, stationarity, and independence, and it identifies the degree of initial persistence of the Chinese stock markets when they were more regulated. The index series are from the Shanghai (SHI) stock market and Shenzhen A-shares (SZI) and B-shares (SZBI) stock markets, before and after the various deregulations and reregulations. Accurate and complete signal processing methods are applied to the complete series and to their sub-periods. The evidence of lack of stationarity and ergodicity can be ascribed to two causes: (1) the initial interventions in these stock markets by the Chinese government by imposing various daily price change limits, and (2) the changing trading styles in the course of the development of these emerging stock markets, after the Chinese government left these equity markets to develop by themselves. By computing the markets' monofractal Hurst exponents (and its accuracy range with a new statistic), using wavelet multiresolution analysis (MRA), we identify the markets' subsequent degrees of persistence. The empirical evidence shows that SHI, SZI, and SZBI are moderately persistent with Hurst exponents slightly greater than the Fickian 0.5 of the Geometric Brownian Motion. It also shows that these stock markets were considerably more persistent before the deregulations, but that they now move much more like geometric Brownian motions, i.e., efficiently. Our results also show that the Chinese stock markets are gradually and properly integrating into one Chinese stock market. Our results are consistent with similar empirical findings from Latin American, European, and other Asian emerging financial markets.
Number of Pages in PDF File: 34
Keywords: Long-term dependence, degrees of persistence, Hurst exponent, wavelet multiresolution analysis, Chinese equity markets
JEL Classification: C15, C33, C53, G13, G15, G18working papers series
Date posted: August 24, 2005
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