Why is price momentum absent in China? Since momentum is commonly considered arising from investors’ under-reaction to fundamental news, we decompose monthly stock returns into news- and non-news-driven components and document a news day return continuation along with an offsetting non-news day reversal in China. The non-news day reversal is particularly strong for stocks with high retail ownership, relatively less recent positive news articles, and limits to arbitrage. Evidence on order imbalance suggests that stock returns overshoot on news days due to retail investors' excessive attention-driven buying demands, and mispricing gets corrected by institutional investors on subsequent non-news days. To avoid this tug-of-war in stock price, we use a signal that directly captures the recent news performance and re-document a momentum-like underreaction to fundamental news in China.

We examine ESG pricing in the Chinese stock market. The results show that holding stocks with high ESG scores does not provide investors with higher future excess returns. On the contrary, stocks with low ESG scores perform better. However, this negative ESG premium feature is robust only in small-cap stocks. As size increases, the negative ESG premium fades away and is characterized by a positive premium in larger stock subgroups. We further examine the source of the negative ESG premium in small-cap stocks. The results show that this negative premium can not be explained by firm characteristics, short-term reversal effects, and lottery characteristics of stocks, but is associated with ESG investors. Specifically, the higher the ESG score with more ESG investors in small-cap stocks, the lower the expected excess return of the stock. This result implies that firms may benefit from ESG performance and disclosure, while investors may suffer from ESG strategies. Based on the results, we remind investors that they should be cautious in using ESG indicators to guide their investment decisions.

We examine a unique phenomenon among exchange traded funds (ETFs) in the Chinese stock market, finding that ETFs pervasively participate in initial public offerings (IPOs) to profit from underpricing. The ETF IPO participation passes primary market benefits to retail investors, providing benefits from hard-to-reach investment opportunities. These active moves showing ETFs are not entirely passive highlight the gains of the active management. However, we observe that this activity leads to increased non-fundamental volatility and short-term return reversals, as well as decreased investment-q sensitivity among ETF member stocks, presenting a negative externality. Using a policy shock as the quasi-natural experiment, we establish the causality of these effects, underscoring the dual nature of ETFs active management.

We find that investors react more favorably to corporate announcements of share repurchases, SEOs, earnings, dividend changes, and acquisitions if the announcement is made immediately prior to or on holidays. These announcements are associated with more positive reactions for favorable events and less negative reactions for unfavorable events. This effect is robust to controls for market conditions and a selection bias, is accompanied by subsequent reversals, and is present in several international markets. Our findings suggest that predictable individual mood changes can cause biases in market reactions to firm-specific news.

Many corporate executives believe blockchain technology is broadly scalable and will achieve mainstream adoption, yet there is little evidence of significant shareholder value creation associated with corporate adoption of blockchain technology. We collect a broad sample of firms that invest in blockchain technology and examine the stock price reaction to the “first” public revelation of this news. Initial reac- tions average close to +13% and are followed by reversals over the next 3 months. However, we report a striking differ- ence based on the credibility of the investment. Blockchain investments that are at an advanced stage or are con- firmed in subsequent financial statements are associated with higher initial reactions and little or no reversal. The results suggest that credible corporate strategies involving blockchain technology are viewed favorably by investors.

Based on high-frequency data of China's commodity market from 2017 to 2022, this article examines the intraday momentum effect. The results indicate that China's commodity futures and options have significant intraday reversal effects, and the overnight opening factor and opening to last half hour factor are more significant. These effects are driven, in part, by liquidity factors. This trend aligns with market makers' behavior, passively accepting orders during low liquidity and actively closing positions amid high liquidity. Furthermore, our examination of cross-predictive ability shows strong futures-to-options predictability, while the reverse is weaker. We posit options traders' Vega hedging as a key factor in this phenomenon, our study finds futures volatility changes can predict options’ return.

This paper examines the effects of superstitious psychology on investors’ decision making in the context of Mercury retrograde, a special astronomical phenomenon meaning “everything going wrong”. Using natural experiments in the Chinese stock market, we find a significant decline in stock prices, approximately -3.14% in the vicinity of Mercury retrogrades, with a subsequent reversal following these periods. The Mercury effect is robust after considering seasonality, the calendar effect, and well-known firm-level characteristics. Our mechanism tests are consistent with model-implied conjectures that stocks covered by higher investor attention are more influenced by superstitious psychology in the extensive and intensive channels. A superstitious hedge strategy motivated by our findings can generate an average annualized market-adjusted return of 8.73%.

This paper studies the Level, Slope, and Curve factor model under different tests in the Chinese stock market. Empirical asset pricing tests reveal that the slope factor in the model represents either reversal or momentum effect for the Chinese stocks. Further tests on individual stocks demonstrate that the Level, Slope, and Curve model using effective predictor variables outperforms other common factor models, thus a filter in virtue of multiple hypothesis testing is designed to identify the effective predictor variables. In the filter models, the cross-section anomaly factors perform better than the time-series anomaly factors under different tests, and trading frictions, momentum, and growth categories are potential drivers of Chinese stock returns.

This paper examines the effects of superstitious psychology on investors’ decision making in the context of Mercury retrograde, a special astronomical phenomenon meaning “everything going wrong”. Using natural experiments in the Chinese stock market, we find a significant decline in stock prices, approximately -3.14% in the vicinity of Mercury retrogrades, with a subsequent reversal following these periods. The Mercury effect is robust after considering seasonality, the calendar effect, and well-known firm-level characteristics. Our mechanism tests are consistent with model-implied conjectures that stocks covered by higher investor attention are more influenced by superstitious psychology in the extensive and intensive channels. A superstitious hedge strategy motivated by our findings can generate an average annualized market-adjusted return of 8.73%.

This paper examines whether China’s switch back and forth from fixed to floating exchange rates in 2005 and 2008 changed the contribution to stock price discovery by foreign and domestic investors. During that time, mainland investors could only trade the RMB-denominated A-shares in the domestic Shanghai and Shenzhen markets, while the dual-listed HKD-denominated H-shares were available only to overseas investors. Using intraday data on overlapping trading hours, we find that the switch from a fixed rate to managed floating in July 2005 increased the H-shares’ contribution to price discovery; while the exchange rate regime reversal in July 2008 allowed the domestic stocks to regain their dominance in information shares. These results imply that, in a market subject to restrictions on capital flows, a flexible exchange rate regime increases the propensity of investors to trade foreign-issued stocks to speculate on the RMB exchange rate, which raises overseas investors’ contribution to price discovery.