Who Chases Returns? Evidence from the Chinese Stock Market
86 Pages Posted: 12 Jul 2022 Last revised: 9 Aug 2022
Date Written: June 30, 2022
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
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