Abstract
This article examines the relation between average holding periods, stock illiquidity and investors’ disposition effects in the Chinese stock markets between 1996 and 2003. The results show that Chinese investors’ holding periods are longer for illiquid stocks and are inversely associated with past stock returns. Both relations are prevalent in the Shanghai and the Shenzhen A-share stock markets, which are dominated by individual investors. Nonetheless, relatively weak evidence is found in regards to the disposition effect in the B-shares markets, which are dominated by institutional investors.
Notes
1 Kang et al . (Citation2002).
2 See Seddighi and Nian (Citation2004) and Wang et al . (Citation2004) for the detailed analysis on the operations and efficiency of the Chinese stock markets.
3 Other measures of illiquidity are the quoted bid-ask spread (Amihud and Mendelson, Citation1986), effective bid-ask spread (Chalmers and Kadlec, Citation1998) and transaction price impact (Brennan and Subrahmanyam, Citation1996). They are finer and better measures than illiquidity. Nevertheless, they require a lot of microstructure data that are not available in the case of the Chinese stock markets. ILLIQ is cruder, though it is readily available for the study of the time series effects of liquidity.
4 See Odean (Citation1998), Shapira and Venezia (Citation2001) and Weber and Camerer (Citation1998) for the existence of the disposition effect in the US market. See Grinblatt and Keloharju (Citation2001) and Shu et al . (Citation2005) for the evidence of disposition effect in markets outside the United States.
5 Again, local Chinese investors have been allowed to trade B-shares since 2001, though foreign investors are predominant because of the strict regulations on exchange control.