Are Chinese Stock Market Cycles Duration Independent?

Abstract

This paper studies the duration properties of the Chinese stock market cycle. We find evidence for duration dependence in both A-share and B-share markets for whole cycles. The results reject the random-walk hypotheses for both markets. For half cycles, evidence of duration dependence for expansions in the Shanghai A-share market is found. For the Shenzhen B-share market, there is little evidence of duration dependence for half cycles. Although the Bshare market is less liquid as compared to the A-share market, the results of this study suggest that the B-share market is more efficient than the A-share market.

Classifying Chinese bull and bear markets: indices and individual stocks

“…This has been indicated by p 1,1 < p 2,2 . This result is consistent with those stated by Girardin and Liu (2003) and Chen et al (2011) in which they find that the mean duration of the contraction period is greater than the expansion period for the Chinese market.…”

“…Moreover, the absolute values of the mean returns in bull markets are higher than the bear markets. The mean return for the A-index is higher than the mean return for the B-index in both Shanghai and Shenzhen markets. This result is comparable to those mentioned by Chen et al (2011) and Yan et al (2007) in which they found that the difference of return between the bull and bear markets could be more than double and highly significant compared to those of traditional markets (Schaller and Van Norden, 2002; and Gonzalez et al , 2005). Most of the mean returns are significant. The mean return of the A-index is equal to the mean return of composite index.…”

“…The mean return for the A-index is higher than the mean return for the B-index in both Shanghai and Shenzhen markets. This result is comparable to those mentioned by Chen et al (2011) and Yan et al (2007) in which they found that the difference of return between the bull and bear markets could be more than double and highly significant compared to those of traditional markets (Schaller and Van Norden, 2002; and Gonzalez et al , 2005).…”

“…2. See Girardin and Liu (2003), Yan et al (2007), Schuppli and Bohl (2010), de Bondt, Peltonen and Santabarbara (2011) and Chen et al (2011).…”

“…This is important for all countries around the world, in particular, for developing countries which have emerging financial markets and are more vulnerable to global economic fluctuations[1]. As discussed in Chen et al (2011), the Chinese stock market has experienced a long period bear cycle from early 2000 until 2006, and then it fluctuated greatly until 2010. However, the cyclical behaviour of stock markets during this period is less well established.…”