Momentum, Reversals, and Investor Clientele

63 Pages Posted: 8 Nov 2021 Last revised: 24 Dec 2021

See all articles by Andy C.W. Chui

Andy C.W. Chui

Hong Kong Polytechnic University

Avanidhar Subrahmanyam

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

Sheridan titman

University of Texas at Austin

Multiple version iconThere are 2 versions of this paper

Date Written: November 2021

Abstract

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 accord with a setting where momentum is caused by informed investors who underreact to fundamental signals, and short-term reversals represent premia to absorb the demands of noise traders. Overall, our findings confirm that clienteles matter in generating stock return predictability from past returns.

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Suggested Citation

Chui, Andy Chun Wai and Subrahmanyam, Avanidhar and titman, Sheridan, Momentum, Reversals, and Investor Clientele (November 2021). NBER Working Paper No. w29453, Available at SSRN: https://ssrn.com/abstract=3958640

Andy Chun Wai Chui (Contact Author)

Hong Kong Polytechnic University ( email )

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Hung Hom, Kowloon, Kowloon
Hong Kong
(852)2766 7105 (Phone)
(852)2356 9550 (Fax)

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

Sheridan Titman

University of Texas at Austin

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