Unlocking the true price impact: Intraday liquidity and expected return in China’s stock market

We propose a new framework for pricing illiquidity risk in China’s stock market. Grounded in market microstructure and behavioral finance theory, our time-weighted intraday Amihud ($TIAM$) measure isolates true trading-driven price impact and empirically outperforms traditional daily proxies. A rigorous dissection of the $TIAM$ premium reveals that its characteristics of long-horizon persistence and strong countercyclicality are consistent with compensation for systematic risk, not transient mispricing. We distill this premium into a size-neutral Intraday Illiquidity Factor ($IML$) that earns a significant alpha against established asset pricing models. We demonstrate that our friction-based illiquidity factor provides a powerful, risk-based explanation for a substantial portion of the size and sentiment anomalies, reframing them as manifestations of a more fundamental, structural risk. Our findings establish intraday illiquidity as a distinct dimension of priced risk, crucial for understanding the asset pricing dynamics of emerging markets.