Retail Investors and Momentum

Abstract

We explore the link between momentum and investing clientele via an identification strategy for retail participation. Specifically, due to a strictly-implemented roundlot restriction, small retail investors are less prone to participating in Chinese stocks with high nominal prices. In turn, there is strong momentum in stocks with high nominal prices, but no momentum on aggregate. Short-term reversals are stronger in low-priced stocks. Institutional holdings enhance momentum in high-priced stocks. Small investor participation increases and momentum weakens following splits in high-priced stocks. The results support the notion that retail trades contribute to short-term reversals, while institutions contribute to momentum.

Keywords: Momentum, Retail investors, Nominal stock prices

JEL Classification: G141, G41