An evaluation of market efficiency in the Chinese stock market using a behavioural volatility model

This study examines the relevance of the efficient markets paradigm in the context of the Chinese market since its inception. Risk characteristics of Chinese stock markets have been evaluated from the traditional volatility (GARCH) models as well as behavioural (STAR GARCH) models. The use of the STAR GARCH model offers perspective into the non-market risks which have been taking place since the stock markets inception and contribute to the literature by creating a greater understanding of the strategic behavior of investors. The study found that strategic behaviour is not static and has undergone dynamic shifts over time as a number of policy changes and structural shifts have taken place. As such Market efficiency has been tested with the findings concluding that the STAR GARCH model has in most cases provided superior results to the conventional GARCH models used. Conclusions regarding market efficiency in China were not strongly supported with empirical evidence in this study. --P. ii.