Why Investors do not Buy Cheaper Securities? Evidence from a Natural Experiment
48 Pages Posted: 18 Mar 2010 Last revised: 8 Feb 2019
Date Written: January 26, 2019
We examine the trading behavior of Chinese domestic investors after they were given access to the B-share market in 2001. Surprisingly, we find that only 2% of investors began buying B shares. Even among these 2%, investors were less likely to buy B shares if they had more experience in the A-share market, and vice-versa. Thus, prior market experience limits the extent to which investors respond to A/B-share premiums and liquidity and lowers their performance. Our findings cannot be explained by government intervention, investor heterogeneity, foreign currency constraint, A/B-share liquidity or speculation differentials, or information advantage.
Keywords: A/B share prices, portfolio inertia, trading experience, trading performance
JEL Classification: G11, D03
Suggested Citation: Suggested Citation