Review of Financial Studies, Vol. 27, No. 11, 2014
65 Pages Posted: 20 Nov 2011 Last revised: 30 Mar 2015
Date Written: June 2, 2014
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: 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
By Ning Zhu