Weak-form Efficiency and Causality Tests in Chinese Stock Markets

China has 2 major stock exchanges - the Shanghai and the Shenzen exchanges. Each of these exchanges trades 2 types of shares, type A and type B shares. "A" shares are available to domestic investors only, and B shares are available to foreign investors. This paper tests for the weak-form efficiency in these markets and explores the statistical relationships and causality among these Chinese stock markets with each other and with the US and Hong Kong stock markets. Results indicate the existence of: 1. a weak-form efficiency in the market for "A" shares but not "B" shares, 2. statistically weak linkages between the Chinese markets, 3. a weak causal effect from the Hong Kong to the 4 Chinese markets, and 4. a strong causal effect from US stock market to all 4 Chinese stock markets and the Hong Kong stock market, particularly during the 2nd period of the sample. Results support the assertion that the Chinese stock markets are becoming more integrated to the global economy.