January 2006

*International Monetary Fund (IMF)

----Abstract----
In this paper, we examine returns in the Chinese A and B stock markets for evidence of
calendar anomalies. We find that both cultural and structural (segmentation) factors play an
important role in influencing the pricing of both A- and B-shares in China. There is some
evidence of a February turn-of-the-year effect, partly owing to the timing of the Chinese
Lunar New Year (CNY); and the holiday effect around the CNY period is stronger and more
persistent compared with the other public holidays. The segmentation between the two
markets is apparent in the day-of-the-week effect, where B stock markets tend to post
significant negative returns on Tuesdays, corresponding with overnight developments in the
United States, while significant negative returns are observed on Mondays in the A stock
markets. Investment strategies based on some of these calendar anomalies, and allowing for
transaction costs, suggest that the A stock markets tend to offer more economically
significant returns.