Revisiting day-of-the-week effect in the Chinese A-share market: a perspective of T+1 trading mechanism

This study investigates the day-of-the-week effect in Chinese A-share market, with particular focus on identifying and explaining the distinctive negative Thursday effect. To unravel this phenomenon, we leverage an innovative dataset comprising 1.7TB of daily trade-by-trade data for individual stocks. As the Chinese A-share market currently adopts a T + 1 trading mechanism, which stipulates that stocks purchased on the same day cannot be sold until the next trading day. This mechanism restricts investors from selling shares bought on the same day, by analysing in detail the bid-ask imbalance of the whole day, the results show that compared with other trading days, the T + 1 trading mechanism on Thursday has the most obvious inhibiting effect on the intraday purchasing willingness of investors. Furthermore, a comparison of A+H shares once again confirms that the unique T + 1 trading mechanism is a significant reason why the average daily return of the stock market on Thursday is significantly lower than that on other trading days of the week. Further research reveals that the negative Friday effect only exists among small capitalization stocks and stocks with high volatility and high turnover exhibit a particularly pronounced Thursday effect, as they are precisely the portfolio most deeply affected by the T + 1 trading mechanism.