Month-end effect on Chinese stock returns: explanation of the liquidity hypothesis

Jie Li, Xu Feng and Yongjie Zhang

Asia-Pacific Journal of Accounting & Economics, 2022, vol. 29, issue 5, 1283-1298

Abstract: This study focuses on an anomaly in the intramonth pattern of stock returns and defines it as the ‘month-end effect’. The mean return for stocks is negative for the month-end days. Moreover, this study provides an economically plausible explanation for the month-end effect, namely, the liquidity hypothesis. It is suggested that the increase in the liquidity demand of commercial banks at the month-end days generally induces a fall in stock returns at the end of each month. Finally, additional evidence is provided that the window dressing hypothesis and macroeconomic news announcements hypothesis have limited explanation for the month-end effect.

Date: 2022
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DOI: 10.1080/16081625.2020.1726190

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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