Does Market Selection Eliminate Unskilled Investors? Evidence from Chinese Brokerage Account Records

56 Pages Posted: 1 Dec 2023

See all articles by Neil D. Pearson

Neil D. Pearson

University of Illinois at Urbana-Champaign - Department of Finance

Zhishu Yang

Tsinghua University - School of Economics & Management

Qi Zhang

Shanghai Jiao Tong University (SJTU)

Date Written: November 23, 2023

Abstract

We use Chinese brokerage account records to study whether market selection eliminates unskilled investors. It does not. Most months, the average cumulative returns since commencing trading of the investors who exit the market exceed those of the investors who stay. The relation between exit and cumulative returns is an inverted V with a peak at zero. Most investors experience negative cumulative returns, placing them in the positively-sloped region of the inverted V, which explains the failure of market selection. The relation between exit and cumulative returns is consistent with a disposition effect operating over investors’ entire trading histories.

Keywords: Market selection, market selection hypothesis, disposition effect, gambling, cumulative prospect theory.

JEL Classification: G10, G11, G14, G40, G41

Suggested Citation

Pearson, Neil D. and Yang, Zhishu and Zhang, Qi, Does Market Selection Eliminate Unskilled Investors? Evidence from Chinese Brokerage Account Records (November 23, 2023). Available at SSRN: https://ssrn.com/abstract=4644235 or http://dx.doi.org/10.2139/ssrn.4644235

Neil D. Pearson

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-244-0490 (Phone)
217-244-9867 (Fax)

Zhishu Yang

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China
+86-10-62771769 (Phone)
+86-10-62785562 (Fax)

Qi Zhang (Contact Author)

Shanghai Jiao Tong University (SJTU) ( email )

China

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