Abstract
This paper provides new empirical evidence for the way in which non-marketability affects asset prices in financial markets. Critically, the results rely on the unique trading friction T+1 rule in the Chinese A-share market. Consistent with the predictions derived from Longstaff (1995) and option pricing theory, overnight returns of A-share stocks are negative on average, decreasing with asset volatilities, volatility risks, and jump risks. The upper bound of the marketability option is restricted by the average holding period of the asset and is smaller when there are substitutional marketability instruments. Thus, the marketability-option-related variables could explain the negative overnight returns of illiquidity, short-term reversal, and momentum.
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