The Turnover Rate Paradox: Market Breadth, Thematic Crowding, and Sector Rotation in the Chinese A-Share Market

Abstract

High turnover is typically viewed as a sign of active capital flows and rapid asset reallocation; however, in the A-share market, it does not necessarily correspond to faster sector rotation. Using weekly data from 2021 to 2025 for the 31 Shenwan Level-1 sectors, this paper classifies market states jointly by return breadth and turnover, and examines how sentiment volatility conditions the turnover-rotation relationship.  The estimates show a clear conditional pattern. In high-breadth weeks, the marginal effect of turnover on rotation speed is -0.052. In low-breadth weeks with stable sentiment, the effect is only -0.002 and statistically insignificant. When low breadth is combined with high sentiment volatility, the effect falls to -0.034, and the negative turnover-rotation relationship reappears.iFinD-based fund-flow evidence shows that the high-turnover, low-breadth state is accompanied by concentrated estimated net institutional inflows and broad retail participation. Because lagged flow variables are not significant, these flows are interpreted as contemporaneous validation rather than as an independent causal mechanism. Turnover should therefore be read jointly with return breadth and sentiment conditions, rather than treated as a standalone signal of sector reallocation.