Efficient Market Testing of the Chinese Stock Market During the COVID-19 Recession

Abstract

Purpose – The purpose of this paper is exploring whether Chinese stock market (SSEC) is effective during the COVID-19 recession. Recent asset market bubbles and bursts have generated interest in the efficiency of stock market behavior. Efficient market hypothesis (EMH) has been challenged by the COVID-19 recession. Design/Methodology/Approach – Based on Efficient market hypothesis, this research will present results of nonparametric tests employed in an econometric investigation of stock market efficiency in China during COVID-19 recession. To test this hypothesis, the Augmented Dickey-Fuller (ADF) test, Autocorrelation Function (ACF) test, Runs test, and Variance Ratio Test were used to assess the behavior of the SSEC. Findings – This paper studies the Chinese stock market’s (SSEC) behavior passed weak form efficient market tests for random walk. According to Variance Ratio Test, a certain group of SSEC investors could experience abnormal returns since there is a possibility that they could know something about a shock that is not already reflected in the stock's price. Research Implications – In the management of this paper, this study will provide help for stock market investors when investing or provide reference significance for the state to manage the stock market.