Testing the Weak-Form Market Efficiency Hypothesis for Canadian and Chinese Stock

Abstract

The main empirical test methods for Weak-form efficiency market hypothesis can be divided into two categories: one is to test the randomness of stock prices; the other is to test the invalidity of technical analysis, which testing the predictability of earnings. This study mainly focused on the first category.To examining the hypothesis whether Canadian and Chinese stock markets are efficient in the weak form, two types of test are conducted. They are parametric and non-parametric tests. For Non-parametric test, we implement the Runs test and Kolmogrov–Smirnov goodness of fit test. For parametric test, autocorrelation (LBQ test), variance ratio and ARMA model have been chosen. The empirical analysis in this study uses daily closing prices of indices from Shanghai Stock Exchange (SSE) and Toronto Stock Exchange (TSX). To avoiding the biases of choosing testing period, we implemented the same tests among different sample periods for each market.The overall testing results are mixed from sample period to sample period for both markets. In general, for the early testing period, almost all testing techniques generate unfavoured results against the weak-form efficient market hypothesis (EMH) for both TSX and SSE. Several testing results based on more recent sample periods align with the assumption under the EMH, but it is still early to claim that either the Canadian or the Chinese stock market hasbecome the weak form efficient. More comprehensive testing results and analysis can be found under section 5 and 6