High turnover with high price delay? Dissecting the puzzling phenomenon for China's A-shares

Risk of holding stocks with liquidity sensitive to market uncertainty: evidence from China

“…In terms of the turnover rate, China's Shanghai stock index has an annual turnover rate of 532 percent in 2017, more than twice that of the S&P 500 index. However, Qian et al (2017) show that high turnover has a negative impact on price efficiency in China's A-shares market. After Qian et al (2017) decompose the turnover into the liquidity component and the uncertainty component based on Barinov (2014)'s model, they find that the trading activities resulting from the uncertainty component mainly causes the price delay effect.…”

“…However, Qian et al . (2017) show that high turnover has a negative impact on price efficiency in China’s A‐shares market. After Qian et al .…”

“…After Qian et al . (2017) decompose the turnover into the liquidity component and the uncertainty component based on Barinov (2014)’s model, they find that the trading activities resulting from the uncertainty component mainly causes the price delay effect. The reason why China’s A‐shares have a high turnover rate may be due to the special investor structure in China’s A‐shares market, where individual investors hold 40.5 percent of the total tradable market value in 2017.…”

Market frictions and momentum premium: does stock mispricing matter? Evidence from China

“…Following Bali et al (2014), Amihud's illiquidity measure is scaled by 10 6 . As a proxy for information asymmetry, we measure quoted bid-ask spread, price delay and price synchronicity, such as Coller and Yohn (1997), Gregoriou et al (2005), Hou and Moskowitz (2005), Griffin et al (2010), J. C. Lin et al (2014) and Qian et al (2017). Quoted Spread, denoted as Spread, is defined as the differences between the quoted ask and bid prices over the midpoint of closing bid and ask prices, estimated as follows:…”

“…However, the Chinese financial market—as being still characterized with its speculative nature, prevalence of young and inexperienced retail investors and limits to arbitrage (Han & Li, 2017)—still represents an interesting case to assess the behavior of asset prices. Second, the existing literature indeed offers extensive evidence on examining momentum strategy in China (e.g., Cheema et al., 2017; Cheung et al., 2015), and there are also several studies that empirically investigate the market frictions (e.g., Morck et al., 2000; Qian et al., 2017) and equity misvaluation (e.g., D. Liu et al., 2016; Luo et al., 2015) in the Chinese context. However, the relation between momentum premium, market frictions and stock misvaluation has not been examined before in China.…”