Why Investors do not Buy Cheaper Securities? Evidence from a Natural Experiment

48 Pages Posted: 18 Mar 2010 Last revised: 8 Feb 2019

See all articles by Kalok Chan

Kalok Chan

CUHK Business School

Baolian Wang

University of Florida - Department of Finance, Insurance and Real Estate

Zhishu Yang

Tsinghua University - School of Economics & Management

Date Written: January 26, 2019

Abstract

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

Chan, Kalok and Wang, Baolian and Yang, Zhishu, Why Investors do not Buy Cheaper Securities? Evidence from a Natural Experiment (January 26, 2019). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1571339 or http://dx.doi.org/10.2139/ssrn.1571339

Kalok Chan

CUHK Business School ( email )

Hong Kong
852 3943 9988 (Phone)

Baolian Wang

University of Florida - Department of Finance, Insurance and Real Estate ( email )

314 Stuzin Hall
Gainesville, FL 32611
United States

HOME PAGE: http://www.wangbaolian.com

Zhishu Yang (Contact Author)

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China
+86-10-62771769 (Phone)
+86-10-62785562 (Fax)

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