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

28 Pages Posted: 4 Mar 2015

Date Written: March 2015


This article 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.

JEL Classification: G12, G14

Suggested Citation

Hung, Chi‐Hsiou D. and Chen, Qiuliang and Fang, Victor, Non‐Tradable Share Reform, Liquidity, and Stock Returns in China (March 2015). International Review of Finance, Vol. 15, Issue 1, pp. 27-54, 2015, Available at SSRN: or

Chi‐Hsiou D. Hung (Contact Author)

University of Glasgow

Adam Smith Business School
Glasgow, G12 8LE
United Kingdom

Qiuliang Chen

Independent ( email )

Shenzhen, Guangdong

Victor Fang

Deakin University ( email )

School of Acc Economics Finance
Burwood Highway
Burwood, Victoria 3215
92446919 (Phone)


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