Trade Size and the Cross Section of Stock Returns: Informed versus Noise Traders in the Chinese Growth Enterprise Market

We examine the impact of trade size on short-term stock returns in China's recently established Growth Enterprise Market (GEM) using a dataset uniquely suited for this purpose. We find that the size of trades relative to a stock's market capitalization (or trade volume) is significantly related to the stock's short-term contemporaneous returns. Small noise trades exhibit consistent loss trading behavior in contrast to large informed trades. More specifically, for each percentage increase of a stock's relative volume by noise trades, the stock price loses 0.07% daily, 0.37% weekly, and 0.66% biweekly. Trading behavior by small noise traders is a significant contrarian signal to short term contemporaneous return performance.