Lack of predictability of returns as a criterion of market efficiency, while the microstructure literature emphasizes a distinct measure of market efficiency financial market; the amount of private information that is reflected in prices. According to Visaltanachoti and Yang (2010), market efficiency is affected by several characteristics of individual stocks such as trading volume, price volatility, institutional trading, market capitalization, and trading costs such as skewness information and illiquidity. In market efficiency research, it is important to choose these measures of market efficiency carefully. Informed traders incorporate information that gives them the opportunity to achieve greater price returns, which is reflected in abnormal order flow (Cullen. et al., 2010). Say no to plagiarism. Get a tailor-made essay on “Why Violent Video Games Should Not Be Banned”? Get an original essayFollowing the methodology proposed by Chordia and Subrahmanyam (2004) and Chordia et al (2008), I will analyze the relationship between stock returns and lags. Order imbalance as a measure of market efficiency. Chordia and Subrahmanyam (2004) argued that using order imbalance to measure market efficiency makes sense in an intermediated market. In such a market, market makers adapt to the buying and selling pressures of the general public. For this reason, few studies have been conducted on a market that is a fully automated, order-driven electronic trading system, such as the Shanghai and Hong Kong markets, where order imbalances may not occur. apply. However, they also pointed out that "order imbalances can signal excessive investor interest in a stock, and if this interest is autocorrelated, then order imbalances could be linked to future returns." Yamamoto (2012) and Hu & Prigent (2017) predicted a short-term horizon. come back with order imbalances in an order-driven market. By these justifications, I apply the Chordia and Subrahmanyam (2004) method to empirically estimate the degree of efficiency of the Shanghai and Hong Kong stock markets. Overview of the Structure of Shanghai and Hong Kong Stock Markets Since the establishment of the Shanghai Stock Exchange in 1990, it has played a considerable role in the development of China's financial market. The market has grown rapidly in terms of market value and listed securities. Stock trading on the SSE is a fully automated mechanism driven by orders on an electronic system. Electronic trading allows market participants to observe and track share volumes, prices and transactions of any stock in the market. Keep in mind: this is just a sample. Get a personalized document from our expert writers now. Get a Custom Trial There are two trading sessions on the SSE that are used to match orders. The morning session begins with an opening auction, from 9:15 a.m. to 9:25 a.m. and a trading session continues from 9:30 a.m. to 11:30 a.m. and resumes in the afternoon from 1:00 p.m. to 3:00 p.m. During the continuous session, orders are sent either via the terminals of the trading floor or via the terminals of the member companies of the exchange. The Hong Kong Stock Exchange, on the other hand, is the main market in Hong Kong where securities can be listed. It is known to be one of the largest in Asia; just behind China and Japan in terms of market capitalization.