Momentum, Reversals, and Investor Clientele
70 Pages Posted: 1 Oct 2020 Last revised: 24 Aug 2021
Date Written: September 17, 2020
Different share classes on the same firms provide a natural experiment to explore how investor clienteles affect momentum and short-term reversals. Domestic retail investors have a greater presence in Chinese A shares, and foreign institutions are relatively more prevalent in B shares. These differences result from currency conversion restrictions and mandated investment quotas. We find that only B shares exhibit momentum and earnings drift, and only A shares exhibit monthly reversals. Institutional ownership strengthens momentum in B shares. These patterns arise in a model with informed investors who underreact to fundamental signals, and retail investors who trade on noise.
Keywords: Chinese stock market, stock market anomalies, momentum, reversals
JEL Classification: G02, G10, G12
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