Information Transmission in the Shanghai Equity Market

We examine market efficiency and the price‐volume relation in Class A and Class B shares on the Shanghai exchange relative to the U. S. equity market. Variance ratios and runs tests for market efficiency support the hypothesis that both Class A and Class B markets follow a random walk. In addition, the augmented Dickey‐Fuller test supports the null hypothesis that the Shanghai market follows a random‐walk process with drift. We also find a significantly positive relation between changes in volume and absolute price returns in both Class A and Class B shares, which is consistent with studies on U.S. equity markets. However, when using signed returns, our results are stronger than most U.S. studies on price‐volume relations. We find no significant difference between the price‐volume correlations in Class A and Class B shares. However, the price‐volume correlations in both Class A and Class B shares are significantly stronger than the price‐volume correlation in the U.S. market. This suggests volume may be more important to information transmission in China than in the U. S. markets.