Holiday Effects in the Chinese Stock Market

Various holiday effects are well documented for developed countries’ stock markets, typically showing abnormal returns around thanksgiving, Christmas, New Year, and Easter. Do similar effects exist in the Chinese stock market? In this post I’ll take a look at returns to the Shanghai Composite Index (SSECI) during the days surrounding the following holidays: New Year, Chinese New Year, Ching Ming Festival, Labor Day, Tuen Ng Festival, Mid-Autumn Festival. The index only has 22 years of history, so statistical significance is difficult to establish. Despite this, I believe the results are quite interesting1.

The charts require a bit of explanation: the error bars are 1.65 standard errors wide on each side. As such, if an error bar does not cross the x-axis, the returns on that day are statistically significantly different from zero at the 5% level (by way of a one-tailed t-test). The most interesting holidays are the New Year, Chinese New Year, and Ching Ming Festival, all of which have several days of quite high returns around them.

New Year

new year

Chinese New Year

chinese new year

Ching Ming Festival

The Ching Ming Festival occurs 15 days after the vernal equinox, which is either April 4th or April 5th.

ching ming festival

Labor Day

labor day

Tuen Ng Festival

The Tuen Ng Festival (A.K.A. Dragon Boat Festival) occurs on the 5th day of the 5th lunar month in the Chinese calendar.

tuen ng festival

Mid-Autumn Festival

The Mid-Autumn Festival falls on the 15th day of the 8th lunar month.

mid autumn festival

 

Bonus: Day of the Month Effects

Since we’re looking at seasonality effects, why not the day of the month effect as well? Using the walk-forward methodology as in my previous day of the month effect posts (U.S., Europe, Asia), here are the results for the Shanghai Composite Index:

dotm china EC

 

dotm china stats

Finally, the average returns for each day of the month over the last 5000 days:

dotm china days

The standard turn of the month effect seems to be present, but only for the first days of the month instead of the last and first days.

And with that, I’d like to you wish you all happy holidays! In eggnog veritas.

  1. I want to take this opportunity to thank the C# language designers; without the ChineseLunisolarCalendar class this study would’ve been a major chore.