Split-Day Trading on Shanghai Stock Exchange and Implications for Information Flow

• In Event: Chinese Stock Exchanges

Abstract

Unlike stock exchanges in the West, large exchanges in the orient close for one to two hours in mid-day for a “lunch break.” Operating exchanges in two shifts per day is a unique phenomenon for China, Hong Kong, Indonesia, Japan, Malaysia and the Philippines. The split-day trades provide corporate managers with a different factor in timing the release of accounting information. In this paper we try to understand the properties of trading in different sessions (morning vs afternoon) before we could examine different effects of accounting information arrival during different sessions. We also hypothesize that suspension of trades during the lunch hour is cultural in that the break allows traders to consult with their superiors and peers and arrive at collective judgment about adjusting their morning trading strategies for in the afternoon. We examine the split-day trades on Shanghai Stock Exchange for the period 2005 – 2013 and arrive at several conclusions: (1) Traders are less aggressive in the afternoon. (2) Tail performers (top and bottom deciles) in the morning reverse in the afternoon (3) Top and bottom deciles have higher volatility in the afternoon as compared to the morning (4) Traders appear to use the lunch break for two purposes: (a) to allow for the brokerage firms to develop different strategies for the afternoon after discussing their morning performance with their superiors, and (b) host new clients for sales meetings at lunch. (5) Morning-to-afternoon results are very much different from afternoon-to-next-day morning.

Authors

• A. Rashad Abdel-khalik, University of Illinois-Urbana-Champaign

• Richard M Crowley, Singapore Management University

• Xiang Li, Nanjing University