Do Wealthy Investors Have an Informational Advantage? Evidence Based on Account Classifications of Individual Investors

45 Pages Posted: 20 May 2015 Last revised: 18 Dec 2017

See all articles by Xindan Li

Xindan Li

Nanjing University

Chris Geng

Shanghai Development Bank

Avanidhar Subrahmanyam

University of California, Los Angeles (UCLA) - Finance Area; Institute of Global Finance, UNSW Business School; Financial Research Network (FIRN)

Honghai Yu

Nanjing University

Date Written: October 1, 2016

Abstract

While trading appears to be hazardous to most individual investors’ wealth, some individual investors with well-functioning informational networks may be able to turn a profit. Indeed, we find that in the Chinese stock market, wealthy investors with portfolio values above the 99.5th percentile (“super” investors) benefit from trading. Super investors who trade the most earn a risk-adjusted return well above that of other investors. Further investigation attributes at least part of their excess returns to informational advantages. These super investors profitably trade around companies’ announcements of high stock dividends, particularly those registered in these super investors’ localities, while the trades of other investors do not show such patterns.

Keywords: individual investors, trading behavior, trading performance

JEL Classification: G14

Suggested Citation

Li, Xindan and Geng, Chris and Subrahmanyam, Avanidhar and Yu, Henry(Honghai), Do Wealthy Investors Have an Informational Advantage? Evidence Based on Account Classifications of Individual Investors (October 1, 2016). Journal of Empirical Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2607708 or http://dx.doi.org/10.2139/ssrn.2607708

Xindan Li

Nanjing University ( email )

Nanjing, Jiangsu 210093
China

Chris Geng (Contact Author)

Shanghai Development Bank ( email )

Malata Technology Building
No. 9992 Shennan Road, Nanshan District
Shenzhen, Guangdong
China

Avanidhar Subrahmanyam

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825-5355 (Phone)
310-206-5455 (Fax)

Institute of Global Finance, UNSW Business School

Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Henry(Honghai) Yu

Nanjing University ( email )

Nanjing, 210093
China

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