Culture and Stock Price Clustering: Evidence from the Peoples' Republic of China

35 Pages Posted: 11 Oct 2004

See all articles by Jason D. Mitchell

Jason D. Mitchell

Singapore Management University - School of Accountancy

Philip R. Brown

UWA Business School, M250; Financial Research Network (FIRN)

Date Written: August 2004

Abstract

Price clustering is the tendency of prices to be observed more frequently at some numbers than others. It results from human bias and from haziness or imprecise beliefs about underlying value. To many Chinese, the number "8" is salient because it is considered "lucky", while "4" is "unlucky" and to be avoided.

We conduct a tightly controlled experiment to determine whether a culturally heuristic number preference exists, by studying trading on the Shanghai and Shenzhen stock exchanges, which have been relatively segmented along cultural lines. Our results are extremely clear. For much of our sample period (1994 - 2002), the prices of A-shares (mostly held by Chinese organisations or individuals) traded on the Shanghai stock exchange were more than twice as likely to end in 8 as 4. Similarly, for A-shares traded on the Shenzhen stock exchange a preference for 8 was found. Preference for 8 on both A-share exchanges was initially very strong, but has dissipated somewhat over time. For the Shanghai A-shares the reduction in the cultural preference only occurred in the most recent period whereas for Shenzhen the reduction occurred considerably earlier. Overall, the cultural preference was widespread for both A-markets and was in fact stronger in opening, high and low relative to closing prices. The preference for 8 was much weaker for B-shares, largely held by foreigners, on both exchanges.

Keywords: Stock price clustering, number preferences, feng shui, Shanghai and Shenzhen stock exchanges

JEL Classification: G10, G14

Suggested Citation

Mitchell, Jason D. and Brown, Philip R., Culture and Stock Price Clustering: Evidence from the Peoples' Republic of China (August 2004). Available at SSRN: https://ssrn.com/abstract=601523 or http://dx.doi.org/10.2139/ssrn.601523

Jason D. Mitchell (Contact Author)

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore
+65 6808 7939 (Phone)

Philip R. Brown

UWA Business School, M250 ( email )

Crawley, Western Australia 6009
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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