Day trading and illiquidity premia: Evidence from China

Ru Xiao; Chaoqun Ma; Dominik Rösch

doi:10.1016/j.pacfin.2026.103100

Day trading and illiquidity premia: Evidence from China

Ru Xiao
, Chaoqun Ma
, Dominik Rösch

Finance

Nanjing University
Ltd.
Hunan University

Research output: Contribution to journal › Article › peer-review

Abstract

AbstractCompared 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.

Original language	English
Article number	103100
Journal	Pacific Basin Finance Journal
Volume	97
DOIs	https://doi.org/10.1016/j.pacfin.2026.103100
State	Published - Mar 2026

Keywords

Chinese stocks
Day trading
Day–night
Illiquidity premium

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10.1016/j.pacfin.2026.103100

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title = "Day trading and illiquidity premia: Evidence from China",

abstract = "AbstractCompared 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.",

keywords = "Chinese stocks, Day trading, Day{\textendash}night, Illiquidity premium",

author = "Ru Xiao and Chaoqun Ma and Dominik R{\"o}sch",

note = "Publisher Copyright: {\textcopyright} 2026 Elsevier B.V. All rights are reserved, including those for text and data mining, AI training, and similar technologies.",

year = "2026",

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doi = "10.1016/j.pacfin.2026.103100",

language = "English",

volume = "97",

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TY - JOUR

T1 - Day trading and illiquidity premia

T2 - Evidence from China

AU - Xiao, Ru

AU - Ma, Chaoqun

AU - Rösch, Dominik

PY - 2026/3

Y1 - 2026/3

N2 - AbstractCompared 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.

AB - AbstractCompared 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.

KW - Chinese stocks

KW - Day trading

KW - Day–night

KW - Illiquidity premium

UR - https://www.scopus.com/pages/publications/105034594586

U2 - 10.1016/j.pacfin.2026.103100

DO - 10.1016/j.pacfin.2026.103100

M3 - Article

AN - SCOPUS:105034594586

SN - 0927-538X

VL - 97

JO - Pacific Basin Finance Journal

JF - Pacific Basin Finance Journal

M1 - 103100

ER -

Day trading and illiquidity premia: Evidence from China

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Keywords

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