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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 are contrarian at daily horizons, providing immediate liquidity, but their potentially informed trades demand liquidity over longer terms.

About the Seminar Series

Financial market development goes hand-in-hand with economic growth. The development of China’s capital markets in terms of size, regulations, capability, and efficiency has been impressive. China may now even lead globally in some dimensions, notably e-payments systems. Yet, China’s capital markets are still a work-in-progress facing both generic and unique challenges. Other Asian capital markets have even greater uneven development. Some in advanced Asian economies have acquired globally acclaimed reputation and capabilities while various regulatory and structural weaknesses dwarf others. Corporations and investors have been inclined to arbitrage cross-border regulatory and developmental gaps; so the very uneven status of capital markets across Asia is a policy issue for the governments in the entire region and perhaps globally. Analyzing the positive and negative lessons in the functioning of Asia’s capital markets, and identifying reforms and applications of technology that could further improve Asian capital markets’ allocation efficiency, financial inclusion, and forewarning against reforms that might cause problems can benefit practitioners, policymakers and researchers, and can contribute significantly to overall prosperity.

The ABFER and the University of Chicago’s Becker Friedman Institute China (BFI-China), in collaboration with National University of Singapore (NUS) Business School, Shanghai Advanced Institute of Finance (SAIF), The Chinese University of Hong Kong (CUHK) Department of Economics, CUHK-Shenzhen and Tsinghua University PBC School of Finance (Tsinghua PBCSF), hope to provide a virtual network to benefit researchers, policymakers, and practitioners from Asia and beyond.

All times are listed in Central Standard Time. A unique Zoom webinar link will be sent to you two days before the event. 

Session Format

Each session lasts for an hour (30 minutes for the author, 15 minutes for the discussion, 15 minutes for participants’ Q&A).


Wednesday, October 13, 2021
9:00 pm - 10:00 pm
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

Discussant: Terrance Odean, Rudd Family Foundation Professor of Finance, Haas School of Business, University of California, Berkeley