An Empirical Study on the Validity of China Stock Markets

This paper takes day closing price and returns of Shanghai Composite index (000001) and Shenzhen Composite (399106) from January 4, 2000 to April 1, 2011 as research object. According to random walk hypothesis, by using run test and unit root test, through testing the validity of Shanghai and Shenzhen stock exchange market, it concludes that both have reached to the weak efficiency. But the test cannot prove that the mutual influence between them exists and the prices overlap, it's necessary to justify whether the two markets are efficiency jointly. Through the Johansen Cointegration Test and the Granger Causality Test, it can be proved that the returns of Shanghai has a slight role in prediction on the Shenzhen, however, there is no long-term and harmonious relationship between Shanghai and Shenzhen stock markets. Based on this, the two markets are weak efficiency jointly.