The long-range dependence phenomena in asset returns: the Chinese case

Abstract

This paper studies the segmented structure of the Chinese stock market, which is a unique opportunity to investigate the possible sources of the long-range dependence phenomena in asset returns. Using the Hurst's exponent evaluated by the Local Whittle method as the measure of long-range dependence, evidence is found supporting that while type B shares present strong evidence of the long-range dependence phenomena, type A shares present only weak evidence of such dependence. This result suggests that liquidity and information transmission play a role in explaining results of market efficiency tests.

Acknowledgements

The views expressed here are solely the responsibility of the authors and do not reflect those of the Central Bank of Brazil or its members.

Notes

¹ It should be noted that using this limiting value of m, larger frequencies are not considered. Therefore, the short range dependence phenomena is not affecting the final conclusions.

² In February 2001 these markets have been released for Chinese investors.

³ In particular, one of the main problems faced by investors who want to diversify internationally their portfolios in emerging markets is the lack of information available to them.

⁴ Deposit rates are too low to be attractive.

⁵ Class B shares are mainly owned by large foreign institutional investors who want to diversify internationally their portfolios.