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The Pre-Holiday Effect in China: Abnormal Returns or Compensation for Risk?

Author

Listed:
  • Tian Yuan

    () (Fixed Income Department, Guosen Securities 6, Xingsheng Street, Beijing 100033, P. R. China)

  • Rakesh Gupta

    () (Department of Accounting, Finance and Economics, Griffith Business School, Nathan Campus, Griffith University, 170 Kessels Road, Nathan, Queensland 4111, Australia)

  • Robert J. Bianchi

    () (Department of Accounting, Finance and Economics, Griffith Business School, Nathan Campus, Griffith University, 170 Kessels Road, Nathan, Queensland 4111, Australia)

Abstract

This study examines the pre-holiday effect in the Chinese stock market. It provides new insights into the weak-form efficiency of China's equity market indexes. Using the GARCH (1,1) model, we find the pre-holiday effect in broad-based Chinese stock returns and in size, value and growth style indexes. Further analysis using a GARCH (1,1)-M model suggests that the pre-holiday effect at both market and industry/sector levels can be attributed to time-varying risk. We show the pre-holiday effect reflects abnormal returns in small-cap, large-cap and growth style indexes while this same effect reflects compensation for bearing risk in value stocks.

Suggested Citation

  • Tian Yuan & Rakesh Gupta & Robert J. Bianchi, 2015. "The Pre-Holiday Effect in China: Abnormal Returns or Compensation for Risk?," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 18(03), pages 1-28.
  • Handle: RePEc:wsi:rpbfmp:v:18:y:2015:i:03:n:s0219091515500149
    DOI: 10.1142/S0219091515500149
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    More about this item

    Keywords

    Chinese stock market; weak-form market efficiency; pre-holiday effect; volatility; GARCH-M;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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