Who Chases Returns? Evidence from the Chinese Stock Market

86 Pages Posted: 12 Jul 2022 Last revised: 9 Aug 2022

See all articles by Weihua Chen

Weihua Chen

Shanghai Stock Exchange

Shushu Liang

Department of Economics, Harvard University

Donghui Shi

Shanghai Stock Exchange

Date Written: June 30, 2022

Abstract

Using data on 18 million individual equity accounts, we study retail investors' return-chasing behavior. We construct a new measure for an individual's return chasing propensity (RCP). Less sophisticated investors tend to exhibit higher RCP. Investors with a one standard deviation higher RCP earn 5.6% lower yearly returns on average. At the stock level, we construct a measure for a stock's return chasing ownership (RCO) by wealth-weighting its retail holders' RCP. Stocks with the highest RCO suffer 10% lower yearly returns on average. Return chasing predicts both investor returns and stock returns more strongly than various other investor characteristics.

Keywords: return chasing, heterogeneity, retail investors, asset pricing

JEL Classification: G00, G1, G12

Suggested Citation

Chen, Weihua and Liang, Shushu and Shi, Donghui, Who Chases Returns? Evidence from the Chinese Stock Market (June 30, 2022). Available at SSRN: https://ssrn.com/abstract=4150725 or http://dx.doi.org/10.2139/ssrn.4150725

Weihua Chen

Shanghai Stock Exchange ( email )

Shanghai 200120
China

Shushu Liang (Contact Author)

Department of Economics, Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

Donghui Shi

Shanghai Stock Exchange

Shanghai 200120
China

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