The lack of predictability of returns as a criterion for market efficiency, while the microstructure literature emphasizes a separate measure of financial market efficiency; the amount of private information that is reflected in prices. According to Visaltanachoti & Yang (2010), market efficiency is influenced by several characteristics of individual securities such as trading volume, price volatility, institutional trading, market capitalization and trading costs such as information asymmetry and illiquidity. In market efficiency research, careful choice of these market efficiency measures is important. Informed traders incorporate information that gives them the opportunity to earn higher price returns and this is reflected in abnormal order flow (Cullen. et al., 2010). Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay Following the methodology proposed by Chordia and Subrahmanyam (2004) and Chordia et al (2008), I will analyze the relationship between stock returns and order imbalance delays as a measure of market efficiency. Chordia and Subrahmanyam (2004), argued that using order imbalance to measure market efficiency makes sense in an intermediary market. In such a market, market makers satisfy 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-based electronic trading system, such as the Shanghai and Hong Kong markets, where order imbalances may not be applicable. However, they also pointed out that “order imbalances may signal excessive investor interest in a stock, and if this interest is autocorrelated, then order imbalances may be correlated with future returns.” Yamamoto (2012) and Hu & Prigent (2017) predicted a short-term return horizon with order imbalances in an order-driven market. With these justifications, I apply the Chordia and Subrahmanyam (2004) method to empirically estimate the degree of market efficiency of the Shanghai and Hong Kong stock markets. Overview of the structure of the Shanghai and Hong Kong stock markets Since its establishment in 1990, the Shanghai stock market has played a huge role in the development of China's financial market. The market has expanded rapidly in terms of market value and listed securities. Stock trading on the SSE is a fully automated mechanism based on orders on an electronic system. Electronic trading allows market participants to observe and monitor the stock volumes, prices and trading of any security on the market. Please note: this is just an example. Get a custom paper from our expert writers now. Get a custom essay There are two trading sessions available on the SSEs used to match orders. The morning session begins with an opening auction, from 9.15am to 9.25am and a continuous trading session from 9.30am to 11.30am and resumes in the afternoon from 1pm to 3pm. During the continuous session, orders are sent via terminals on the trading floor or terminals at the companies of the exchange members. 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.