0.0805 0.0588 0.0002 0.0592
2
= 0.0805,
π(2) = 0.0588, =
= 1.369
3
= 0.0002,
π(3) = 0.0592, =
= 0.0034
β0.0733 0.0592
4
= β0.0733,
π(4) = 0.0592, =
= 1.238
Critical values of t statistic are given in the following table:
Two-tailed test
Significant level
10% 1.65
5%
1%
Critical value 2.59 Since the largest t-value obtained is 1.369, which is in the acceptance region ( β1.65 < 1.369 < 1.65) , there is no enough evidence to reject the null hypothesis at any significant level, indicating the Chinese stock market is indeed efficient. To conclude, the test we conducted for the Shanghai Stock Exchange security prices clearly shows that the market is working efficiently. However, if markets are really efficient, the serious question raised as to which roles these professional analysts in investment banks can play. Securities markets are flooded with thousands of intelligent, well-paid, and well-educated analysts. So are they just claiming free lunches but doing nothing in the bank? Of course not. One of the evidences is that some fund managers do consistently outperform the market over a very long period. There is mounting evidence that stock returns are predictable by using various complicated mathematical models 4 . Those that accept the EMH generally believe that the primary role of a portfolio manager consists of analyzing and investing appropriately based on an investor's tax considerations and risk profile. Optimal portfolios will vary according to factors such as age, tax bracket, risk aversion, and employment. The role of the portfolio manager in an efficient market is to tailor a portfolio to those needs, rather than to beat the market. 5 βHuman beings overestimate causality, e.g. , they see elephants in the clouds instead of understanding that they are in fact randomly shaped clouds that appear to our eyes as elephants (or something else). They tend to view the world as more explainable than it really is. So they look for explanations even when there are none.β (Fooled by Randomness). 1.97
4 Pesaran, M. H. (2001) Market Efficiency and Stock Market Predictability 5 The Efficient Market Hypothesis (no date) Available at: http://www.investorhome.com/emh.htm (Accessed: 12 April 2015)
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