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A new perspective on financial anomalies in emerging markets: the case of China


  • Zhichao Zhang
  • Wai Sun
  • Hua Wang


Financial anomalies in emerging markets can be caused by very different reasons than that in mature markets. In a Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model, we examine financial anomalies in emerging markets from a new perspective, which focuses on heavy political interventions. In the context of China, we show that political consideration of the government can be a critical force that drives the monthly anomaly in the stock market. The Chinese case indicates that usual explanations for the monthly anomaly or the January effect may become invalid in an environment where political intervention is a dominant force in the stock market. Typical of a policy-driven market that prevails in emerging economies, indicate no evidence for the January effect in China, neither its mirror version, the Chinese New Year effect. Rather, returns abnormality is found to occur in March when China is in the political high season. This March effect is likely a result of political manoeuvre by the government to make the appearance of a stable and thriving stock market, which serves the political purpose of preventing social resentment in a politically sensitive time. This shows political window dressing can be an important cause of financial anomalies, which has been largely neglected in the literature.

Suggested Citation

  • Zhichao Zhang & Wai Sun & Hua Wang, 2008. "A new perspective on financial anomalies in emerging markets: the case of China," Applied Financial Economics, Taylor & Francis Journals, vol. 18(21), pages 1681-1695.
  • Handle: RePEc:taf:apfiec:v:18:y:2008:i:21:p:1681-1695 DOI: 10.1080/09603100701735946

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    Cited by:

    1. Gabe de Bondt & Tuomas Peltonen & Daniel Santabarbara, 2011. "Booms and busts in China's stock market: estimates based on fundamentals," Applied Financial Economics, Taylor & Francis Journals, vol. 21(5), pages 287-300.
    2. Yuan, Tian & Gupta, Rakesh, 2014. "Chinese Lunar New Year effect in Asian stock markets, 1999–2012," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(4), pages 529-537.

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