Seasonalities in China's Stock Markets: Cultural or Structural?

IMF Working Papers, January 1, 2006

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Seasonalities in China's Stock Markets: Cultural or Structural?

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Bibliographic details

• Authors: Jason D. Mitchell, Li L Ong
• Published: January 1, 2006
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451862645.001

Summary findings

• Examined returns in the Chinese A and B stock markets for evidence of calendar anomalies.
• Both cultural and structural (segmentation) factors play an important role in influencing the pricing of both A- and B-shares in China.
• There is some evidence of a February turn-of-the-year effect, partly owing to the timing of the Chinese Lunar New Year (CNY).
• The holiday effect around the CNY period is stronger and more persistent compared with the other public holidays.
• Segmentation between the two markets is apparent in the day-of-the-week effect:
  • B stock markets tend to post significant negative returns on Tuesdays, corresponding with overnight developments in the United States.
  • Significant negative returns are observed on Mondays in the A stock markets.
• Investment strategies based on some of these calendar anomalies, and allowing for transaction costs, suggest that the A stock markets tend to offer more economically significant returns.

Evidence and patterns

• Calendar anomalies detected include:
  • February turn-of-the-year effect (linked partly to Chinese Lunar New Year).
  • Holiday effect concentrated and persistent around CNY.
  • Day-of-the-week effects differing by market segmentation (A versus B shares).
• Market segmentation interpretation:
  • Structural segmentation aligns B-share behavior with overnight U.S. developments (negative returns on Tuesdays).
  • A-share behavior shows a separate pattern with negative returns on Mondays.

Investment strategy implications

• Back-tested strategies that exploit identified calendar anomalies and incorporate transaction costs indicate:
  • A stock markets generally provide more economically significant returns than B stock markets when anomalies are exploited.
• Practical considerations:
  • The timing of CNY should be considered when evaluating February and holiday-related returns.
  • Market segmentation implies that strategies cannot be uniformly applied across A- and B-share markets without adjustment for differing calendar sensitivities.

Publication and metadata

• Authors: Jason D. Mitchell, Li L Ong
• Publication date: January 1, 2006
• Series: Working Paper No. 2006/004
• Issue: 004
• Volume: 2006
• Pages: 46
• DOI: https://doi.org/10.5089/9781451862645.001
• Stock No: WPIEA2006004
• ISBN: 9781451862645
• ISSN: 1018-5941
• Subject areas: Asset and liability management; Balance of payments; Financial institutions; Financial markets; Liquidity; Portfolio investment; Stock markets; Stocks
• Keywords: A stock market vis-à-vis; A-shares; A-shares participant; abnormal returns; Asia and Pacific; B market; B stock market; B stock share market; B-shares; Chinese Lunar New Year; day-of-the-week effect; half-month effect; half-year effect; holiday effect; January effect; Liquidity; market liquidity; North America; Northern Europe; Portfolio investment; rate of return; seasonalities; share price; Shenzhen B stock share market; Stock markets; Stocks; turn-of-the-year effect; WP

IMF Working Paper — Seasonalities in China's Stock Markets: Cultural or Structural?

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