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In this study, we demonstrate the usefulness of ARIMA‐Intervention time series analysis as both an analytical and forecast tool. The data base for this study is from the PACAP‐CCER China Database developed by the Pacific‐Basin Capital Markets (PACAP) Research Center at the University of Rhode Island (USA) and the SINOFIN Information Service Inc, affiliated with the China Center for Economic Research (CCER) of Peking University (China). These data are recent and not fully explored in any published study. The forecasting analysis indicates the usefulness of the developed model in explaining the rapid decline in the values of the price index of Shanghai A shares during the world economic debacle stating in China in 2008. Explanation of the fit of the model is described using the latest development in statistical validation methods. We note that the use of a simpler technique although parsimonious will not explain the variation properly in predicting daily Chinese stock prices. Furthermore, we infer that the daily stock price index contains an autoregressive component; hence, one can predict stock returns.

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