The Trading Behavior of Institutions and Individuals in Chinese Equity Markets

摘要

This paper employs a unique data set to analyze the trading behavior of 6.4 million individual and institutional investors across the Mainland China. We ˉnd groups of investors with varying levels of wealth and hence investor sophistication engage in different trading strategies. Consis- tent with most existing studies, our analysis shows that Chinese institutions, though forming only 0.5% of the investing population, are momentum investors. In contrast with earlier studies, we show that Chinese individual investors cannot be characterized in a general way. Less so- phisticated and less wealthy individuals tend to act as contrarians, whereas more sophisticated ones tend to behave like institutions when they buy stocks on the one hand, and behave like less sophisticated individuals when they sell on the other. Regardless of the level of investor sophistication, individual investors in general exhibit a strong disposition effect in that they tend to hold on to losing investments too long. Further analyses suggest that buy trades by various investor groups can help to reduce future stock volatility while sell trades can lead to a higher future volatility. Examining the effects of trades on future stock returns clearly suggests that institutional buying and selling of stocks are in the direction of future returns, but not individual investors buying and selling of stocks.