Turnover premia in China's stock markets

This paper explores turnover premia in China's stock markets. There is a negative cross-sectional relation between turnover and average realized returns. Turnover premia, which is the return on buying low turnover stocks and shorting high turnover stocks, can reach 34% per annum. In effect, turnover in China's stock markets can be explained mainly by both liquidity risk and firm-specific uncertainty. Turnover premia are more pronounced for firms with higher cash flow risk, an indicator of firm-specific uncertainty. Cash flow risk could also amplify the turnover premia of option-like firms. •A negative cross-sectional relation between turnover and average realized returns.•Turnover premia is more pronounced for firms with option-like equity.•Aggregate volatility risk exposure in conjuction with cash-flow risk partially explain China's turnover premia.