Non-Tradable Share Reform, Liquidity and Stock Returns in China

50 Pages Posted: 18 Dec 2014

See all articles by Chi-Hsiou Daniel Hung

Chi-Hsiou Daniel Hung

University of Glasgow - Adam Smith Business School

Qiuliang Chen

Independent

Victor Fang

Monash University - Department of Accounting

Date Written: November 16, 2014

Abstract

This paper studies the influence of the non-tradable share reform in the cross-section of stock returns in China. Prior research has generally neglected this important development in the Chinese stock market. We find that the firm-specific illiquidity measures that reflect direct transaction costs, price impact and difficulties in trading immediacy, exhibit a positive and significant relationship with stock returns. These effects are particularly pronounced after the non-tradable share reform. Furthermore, in the post-reform era portfolios with high illiquidity (i.e. high relative bid-ask spread, high Amihud illiquidity, low Amivest liquidity ratio) significantly outperform portfolios with low illiquidity, controlling for size and book-to-market effects.

Keywords: Non-tradable share reform, Liquidity, Stock returns, Chinese stock markets

JEL Classification: G12, G14

Suggested Citation

Hung, Chi-Hsiou Daniel and Chen, Qiuliang and Fang, Victor, Non-Tradable Share Reform, Liquidity and Stock Returns in China (November 16, 2014). Available at SSRN: https://ssrn.com/abstract=2539166 or http://dx.doi.org/10.2139/ssrn.2539166

Chi-Hsiou Daniel Hung (Contact Author)

University of Glasgow - Adam Smith Business School ( email )

Gilbert Scott Building
University of Glasgow
Glasgow, Scotland G12 8QQ
United Kingdom

Qiuliang Chen

Independent ( email )

Shenzhen, Guangdong
China

Victor Fang

Monash University - Department of Accounting ( email )

Building 11E
Clayton, Victoria 3800
Australia

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