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The Chinese Stock Market: An Examination of the Random Walk Model and Technical Trading Rules

Nauzer J. Balsara, Gary Chen and Lin Zheng
Quarterly Journal of Business and Economics
Vol. 46, No. 2 (Spring, 2007), pp. 43-63
Published by: Creighton University
Stable URL: http://www.jstor.org/stable/40473435
Page Count: 21
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
The Chinese Stock Market: An Examination of the Random Walk Model and Technical Trading Rules
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Abstract

Using the variance ratio test, we reject the random walk null hypothesis for class A and class  stock market indexes traded on the Shanghai and Shenzhen stock exchanges. Consistent with this result, we find that the ARIMA forecasting model generates more accurate forecasts as compared to the naïve model based on the random walk assumption. We also observe significant positive returns for individual stocks after transaction costs on buy trades generated by the contrarian version of three commonly used technical trading rules: the moving average crossover rule, the channel breakout rule, and the Bollinger band breakout rule.

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