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Journal of Financial and Quantitative Analysis Vol. 60 No. 1 2025

Retail Trading and Return Predictability in China

Charles M. Jones1; Donghui Shi2; Xiaoyan Zhang3; Xinran Zhang4

1 Columbia Business School · 2 Fudan University Fanhai International School of Finance · 3 Tsinghua University, PBC School of Finance · 4 Central University of Finance and Economics School of Finance

Abstract

Using comprehensive account-level data, we separate Chinese retail investors into 5 groups and document strong heterogeneity in trading dynamics and performances. Retail investors with smaller account sizes cannot predict future returns correctly, display daily momentum patterns, fail to process public news, and show overconfidence and gambling preferences, while retail investors with larger account balances predict future returns correctly, display contrarian patterns, and incorporate public news in trading. Using performance measures established in previous literature, we find that smaller retail investors suffer from poor stock selection abilities and trading costs, while large retail investors’ stock selection abilities are offset by trading costs.

DOI
10.1017/s0022109024000085
Volume
60
Issue
1
Pages
68-104
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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