Segmentation and Seasonlity within the Chinese Stock Market

Abstract

The purposes of this thesis are to investigate the integration of the Chinese stock markets with the world market as well as test for seasonality within the market. We have used the A-share indices on the Shanghai and Shenzhen stock markets and the five underlying sub-indices for each market. These indices have been compared to the MSCI world market index, which represents the global market. In our test for seasonality we find proof of seasonality in the main indices as well as for the sub-indices for the first two sub-periods but not for the third (2006-2013). This implies that the market is becoming more efficient and that arbitrage opportunities are diminishing. Regarding our test for market integration we have used a modified Jorion and Schwartz model where results suggests that the Chinese stock market is still heavily segmented from the world despite the liberalization of market regulations that have been implemented by the Chinese government over the last two decades.