Trading for Status

Review of Financial Studies, Vol. 27, No. 11, 2014

65 Pages Posted: 20 Nov 2011 Last revised: 30 Mar 2015

Harrison G. Hong

Columbia University, Graduate School of Arts and Sciences, Department of Economics; National Bureau of Economic Research (NBER)

Wenxi Jiang

CUHK Business Schoold

Na Wang

Hofstra University - Frank G. Zarb School of Business

Bin Zhao

Shanghai Advanced Institute of Finance; Shanghai Jiao Tong University (SJTU); China Academy of Financial Research (CAFR)

Date Written: June 2, 2014

Abstract

We show that Keeping-up-with-the-Joneses 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 cities between 1998 and 2012.

Suggested Citation

Hong, Harrison G. and Jiang, Wenxi and Wang, Na and Zhao, Bin, Trading for Status (June 2, 2014). Review of Financial Studies, Vol. 27, No. 11, 2014. Available at SSRN: https://ssrn.com/abstract=1961833 or http://dx.doi.org/10.2139/ssrn.1961833

Harrison G. Hong (Contact Author)

Columbia University, Graduate School of Arts and Sciences, Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Wenxi Jiang

CUHK Business Schoold ( email )

Room 1250, Cheng Yu Tung Building
Chinese University of Hong Kong
Shatin, NT 06520
Hong Kong

Na Wang

Hofstra University - Frank G. Zarb School of Business ( email )

134 Hofstra University
Hempstead, NY 11549
United States

Bin Zhao

Shanghai Advanced Institute of Finance ( email )

211 West Huaihai Road
Shanghai, 200030
China

Shanghai Jiao Tong University (SJTU) ( email )

KoGuan Law School
Shanghai 200030, Shanghai 200052
China

China Academy of Financial Research (CAFR) ( email )

1954 Huashan Road
Shanghai P.R.China, 200030
China

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