Retail Trading and Return Predictability in China
87 Pages Posted: 7 Oct 2021 Last revised: 22 Sep 2023
Date Written: June 15, 2020
Abstract
Using comprehensive account-level data, we separate Chinese retail investors into five groups and document strong heterogeneity in trading dynamics and performances. Retail investors with smaller account sizes cannot predict future returns correctly, display daily momentum patterns, fail to process public news, and show overconfidence and gambling preferences; while retail investors with larger account balances predict future returns correctly, display contrarian patterns, and incorporate public news in trading. With Barber et al. (2009) performance measures, smaller retail investors suffer from poor stock selection abilities and trading costs, while large retail investors’ stock selection abilities are offset by trading costs.
Keywords: retail investors, Chinese stock market, return predictability, information content
JEL Classification: G12, G14, G15
Suggested Citation: Suggested Citation