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Understanding Retail Investors: Evidence from China

Using comprehensive account-level data from 2016 to 2019, the authors examine retail investor trading behavior in the Chinese stock market. The authors separate millions of retail investors into five groups by their account sizes and document strong heterogeneity in their trading dynamics and performance. Retail investors with smaller account sizes cannot predict future price movements correctly, in the sense that they buy future losers and sell future winners. These investors fail to process public news and display behavioral biases such as overconfidence and gambling preferences. In sharp contrast, retail investors with larger account balances predict future returns correctly, incorporate public news in their trading, and gain more in stocks which are more attractive to investors with behavioral biases. For liquidity provision, the smaller retail investors follow daily momentum strategies, demanding immediate liquidity, while they become contrarian over weekly horizons, and they contribute positively towards firm-level liquidity. On the contrary, larger retail investors ae contrarian at daily horizons, providing immediate liquidity, but their potentially informed trades demand liquidity over longer terms.

14
Oct
2021
Thursday

Session Chair: Zheng (Michael) SONG
Professor at the Department of Economics, Chinese University of Hong Kong and Senior Fellow, ABFER

10:00 am
Understanding Retail Investors: Evidence from China

Xiaoyan ZHANG, Xinyuan Professor of Finance, Associate Dean, PBC School of Finance, Tsinghua University and Senior Fellow of ABFER

Co-authors:
Charles M. JONES, Robert W. Lear Professor of Finance and Economics, Columbia Business School, Columbia University
Donghui SHI, Professor of Finance (Practice-Track), Fanhai International School of Finance, Fudan University
Xinran ZHANG, Assistant Professor, School of Finance, Central University of Finance and Economics
10:25 am
Discussion
Discussant:
Terrance ODEAN, Rudd Family Foundation Professor of Finance, Haas School of Business, University of California, Berkeley
10:50 am
Q&A
11:10 am


Updated 14 Oct 2021

Speakers

  • Xiaoyan ZHANG

    Xiaoyan ZHANG

     

    Xinyuan Professor of Finance, Associate Dean, PBC School of Finance, Tsinghua University

    Xiaoyan Zhang is the Xinyuan Chair Professor of Finance and Associate Dean at PBC School of Finance, Tsinghua University. She is also the Deputy Director of National Institute of Financial Research and Institute of Fintech Research at Tsinghua University, and the director of Xinyuan Fintech Research Center. Prof. Zhang received her B.A. in Economics from Peking University in 1997, and Ph.D. in Finance (with honor) from Columbia Business School in 2002. Before joining Tsinghua University, Prof. Zhang worked at the Johnson School of Management of Cornell University as an Assistant Professor of Finance, and the Krannert School of Management of Purdue University as Duke Realty Chair Full Professor of Finance and Finance Group Head. Currently, Professor Zhang is a senior fellow of the Asian Bureau of Finance and Economic Research (ABFER), and a senior financial expert of the Shanghai Stock Exchange. Professor Zhang served on the CSRC 17th Issuance Examination Committee, and currently serves on the World Economic Forum’s Global Future Council, China Global Economic Governance 50 Forum, and Expert Committee of National Internet Finance Association.

    Professor Zhang’s research interests include international finance, empirical asset pricing, fintech and Chinese capital market. Many of her works have been published in Journal of Finance, the Journal of Financial Economics, the Review of Financial Studies and other top tier academic journals, and have won the best paper awards multiple times. Given her research excellence, Prof. Zhang is appointed as associate editor at Management Science, Financial Management, Journal of Banking and Finance and Journal of Empirical Finance. Her team’s research on Chinese capital market receives the highest level of grant from National Natural Sciences Foundation of China.

    Professor Zhang enjoys teaching in global capital market, financial derivatives, risk management and empirical asset pricing for undergraduate, Master of Finance, Ph.D., MBA, financial engineering and executive programs. She received many teaching awards from Cornell, Purdue and Tsinghua University. Due to her significant contributions on teaching and research, Professor Zhang was named one of the “Global Top 40 under 40” business school professors.

  • Terrance ODEAN

    Terrance ODEAN

     

    Rudd Family Foundation Professor of Finance, Haas School of Business, University of California, Berkeley

    Terrance Odean is the Rudd Family Foundation Professor of Finance at the Haas School of Business at the University of California, Berkeley. He is an advisory editor of the Financial Planning Review, a member of the Journal of Investment Consulting editorial advisory board and of the Russell Sage Behavioral Economics Roundtable, and is a Wall Street Journal Expert Panelist. In 2016, he received the James R. Vertin Award from the CFA Institute for research notable for its relevance and enduring value to investment professionals. He has been an editor and an associate editor of the Review of Financial Studies, an associate editor of the Journal of Finance, a co-editor of a special issue of Management Science, an associate editor at the Journal of Behavioral Finance, a director of UC Berkeley’s Experimental Social Science Laboratory, a member of the Russell Investments Academic Advisory Board, a member of the WU Gutmann Center Academic Advisory Board at the Vienna University of Economics and Business, a visiting professor at the University of Stavanger, Norway, chair of the Haas Finance Group, and the Willis H. Booth Professor of Finance and Banking. As an undergraduate at UC Berkeley, Odean studied judgment and decision making with the 2002 Nobel Laureate in Economics, Daniel Kahneman.

  • Zheng (Michael) SONG

    Zheng (Michael) SONG

     

    Professor at the Department of Economics, Chinese University of Hong Kong and Senior Fellow, ABFER

    Michael Song is a professor at the Department of Economics, Chinese University of Hong Kong (CUHK), an outstanding fellow of the Faculty of Social Science at CUHK, a co-director of CUHK-Tsinghua Joint Research Center for Chinese Economy and a distinguished visiting professor at the School of Economics and Management, Tsinghua University. His research focuses on Chinese economy and macroeconomics. He published papers on leading academic journals including American Economic Review and Econometrica. His paper “Growing like China” won Sunyefang Economic Science Award and the Best Paper Award for Chinese Young Economists. Before joining CUHK, Prof. Song was an associate professor of economics at Chicago Booth. Prof. Song is also a co-editor of China Economic Review, an associate editor of Econometrica and Journal of European Economic Association and an academic committee member of China’s Economics Foundation.

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Session Format

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Agenda