Short-horizon market efficiency, order imbalance, and speculative trading: evidence from the Chinese stock market

S.I.: Risk in Financial Economics
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Abstract

This paper uses a two-stage regression approach and tick data from 2012 to investigate the factors that affect short-horizon market efficiency in the Chinese stock market. The findings show that market efficiency is significantly related to certain variables for individual stocks, such as return volatility, trading volume, closing price, and trading costs. Furthermore, one specific characteristic of the Chinese stock market, prevalent speculative trading, causes these relations to differ from those in the US stock market. The stocks with high return volatility and high price level are more efficiently priced in short horizons because they have an elevated level of speculative trading, which gradually loses its effect on market efficiency in the Chinese stock market after 15–20 min.

Keywords

Emerging stock markets High-frequency data Market efficiency Order imbalance 

JEL Classification

G12 G14 G15 
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Notes

Acknowledgements

The author thanks Jos van Bommel, Jörg Prokop, and participants at the 34th International Conference of French Finance Association for helpful discussions and suggestions. The author is particularly grateful to the anonymous referees for their insightful comments.

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Authors and Affiliations

  1. 1.Institute of Chinese Financial StudiesSouthwestern University of Finance and EconomicsChengduChina

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