Trading for Status
Harrison G. Hong
Princeton University - Department of Economics; National Bureau of Economic Research (NBER)
Yale University - School of Management
Shanghai Advanced Institute of Finance; Shanghai Jiao Tong University (SJTU); China Academy of Financial Research (CAFR)
January 1, 2014
We show that Keeping-up-with-the-Jones preferences can explain several puzzling retail investor behaviors, including the excessive trading of small local stocks. Status concerns lead households, especially those living in affluent areas, to demand these stocks to track their neighbors' wealth. This demand varies pro-cyclically with the stock market's value and generates household trading. Using Chinese data on local stock turnover, stock message boards and brokerage account trading, we test and confirm this hypothesis by exploiting the uneven rise of affluence across Chinese provinces between 1998 and 2012.
Number of Pages in PDF File: 68working papers series
Date posted: November 20, 2011 ; Last revised: January 8, 2014
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