Day trading and illiquidity premia: Evidence from China

55 Pages Posted: 5 May 2021 Last revised: 24 May 2022

See all articles by Chaoqun Ma

Chaoqun Ma

Hunan University - Business School

Ru Xiao

Hunan University - Business School

Dominik Rösch

State University of New York at Buffalo - School of Management

Date Written: May 1, 2021

Abstract

Compared to US stocks, Chinese stocks earn most of the returns during the day. We argue this reflects a shifted illiquidity premium caused by the day trading ban. We estimate difference-in-differences regressions comparing affected Chinese A-class stocks to unaffected Chinese B-class stocks and propensity-score matched Japanese stocks around that ban in 1995. We find an increase in day returns (especially, for previously liquid stocks), a decrease in night returns, and unchanged 24-hour returns. We exclude a risk-based explanation and provide evidence indicating that the time-series illiquidity premium shifts from night to day, while the cross-sectional illiquidity premium diminishes.

Keywords: Chinese Stocks, Day Trading, Day-Night, Illiquidity Premium

JEL Classification: G11, G12, G14

Suggested Citation

Ma, Chaoqun and Xiao, Ru and Rösch, Dominik, Day trading and illiquidity premia: Evidence from China (May 1, 2021). Available at SSRN: https://ssrn.com/abstract=3838211 or http://dx.doi.org/10.2139/ssrn.3838211

Chaoqun Ma

Hunan University - Business School ( email )

Changsha, Hunan 410082
China

Ru Xiao

Hunan University - Business School ( email )

Changsha, Hunan 410082
China

Dominik Rösch (Contact Author)

State University of New York at Buffalo - School of Management ( email )

Jacobs Management Center
Buffalo, NY 14222
United States

HOME PAGE: http://dominikroesch.com

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