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Day trading and illiquidity premia: Evidence from China

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  • Xiao, Ru
  • Ma, Chaoqun
  • Rösch, Dominik

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 in 1995. We estimate difference-in-differences regressions comparing affected Chinese A-shares to unaffected Chinese B-shares and propensity-score matched Japanese stocks around that ban. We find an increase in day returns (especially, for previously liquid stocks), a decrease in night returns, and unchanged 24-hour returns. Using data from 1993 to 2014, 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.

Suggested Citation

  • Xiao, Ru & Ma, Chaoqun & Rösch, Dominik, 2026. "Day trading and illiquidity premia: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:pacfin:v:97:y:2026:i:c:s0927538x26000466
    DOI: 10.1016/j.pacfin.2026.103100
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