Cross-sectional seasonalities and seasonal reversals: Evidence from China

We are the first to comprehensively investigate cross-sectional seasonalities and seasonal reversals in the Chinese A-share market. Empirically, utilizing monthly data from January 1995 to December 2019, we provide new supporting evidence that there are seasonalities and seasonal reversals in the cross-section. Interestingly, the occurrence of seasonal reversals takes a longer time than that of the U.S. market. Next, we explore explanations for cross-sectional seasonalities. The tests based upon macroeconomic risk, mood beta, and limits of arbitrage suggest that seasonalities are likely driven by temporary mispricing. Finally, we construct seasonality and seasonal reversal factors to study the investment value of seasonalities. We find that these factors can significantly increase the monthly Sharpe ratio by up to 0.34 and capture incremental information in predicting future returns relative to other well-known factors. •We are the first to investigate cross-sectional seasonalities and seasonal reversals in China comprehensively.•We provide new supporting evidence that seasonalities and seasonal reversals exist in the cross-section.•We find mispricing other than risk compensation could explain our results.•We construct seasonality and seasonal reversal factors and find that they can significantly increase monthly Sharpe ratios.