Return Seasonality and Investor Structure : A Tale of Twin Markets in China

In this paper, we examine the impact of investor structure on return seasonality driven by institutional investors’ seasonal trading in China’s stock markets. Our identification of investor structure is based on the unique twin market setting in China, in which shares with the same firm fundamentals are cross-listed in both A-share and B-share markets. Given that there are more retail investors in A-share market, we find that 12 types of return seasonality in A-shares are significantly stronger than their cross-listed B-share counterparts, consistent with our theory predictions. We further use the Stock Connect program in China as an exogenous shock to control endogeneity and find the change in investor structure indeed has significant effect on return seasonality