Why investors do not buy cheaper securities: Evidence from a natural experiment

Kalok Chan; Baolian Wang; Zhishu Yang

doi:10.1016/j.jbankfin.2019.02.002

Why investors do not buy cheaper securities: Evidence from a natural experiment

Kalok Chan, Baolian Wang, Zhishu Yang^*

^*Corresponding author for this work

Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review

4 Citations (Scopus)

Abstract

We examine the trading behavior of Chinese domestic investors after they were given access to the B-share market in 2001. Surprisingly, we find that only 2% of investors began buying B shares. Even among these 2%, investors were less likely to buy B shares if they had more experience in the A-share market, and vice-versa. Thus, prior market experience limits the extent to which investors respond to A/B-share premiums and liquidity and lowers their performance. Our findings cannot be explained by government intervention, investor heterogeneity, foreign currency constraint, A/B-share liquidity or speculation differentials, or information advantage. © 2019

Original language	English
Pages (from-to)	59-76
Journal	Journal of Banking and Finance
Volume	101
DOIs	https://doi.org/10.1016/j.jbankfin.2019.02.002
Publication status	Published - 1 Apr 2019
Externally published	Yes

Bibliographical note

Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to [email protected].

Research Keywords

A/B share prices
Portfolio inertia
Trading experience
Trading performance

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10.1016/j.jbankfin.2019.02.002

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title = "Why investors do not buy cheaper securities: Evidence from a natural experiment",

abstract = "We examine the trading behavior of Chinese domestic investors after they were given access to the B-share market in 2001. Surprisingly, we find that only 2% of investors began buying B shares. Even among these 2%, investors were less likely to buy B shares if they had more experience in the A-share market, and vice-versa. Thus, prior market experience limits the extent to which investors respond to A/B-share premiums and liquidity and lowers their performance. Our findings cannot be explained by government intervention, investor heterogeneity, foreign currency constraint, A/B-share liquidity or speculation differentials, or information advantage. {\textcopyright} 2019",

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T1 - Why investors do not buy cheaper securities

T2 - Evidence from a natural experiment

AU - Chan, Kalok

AU - Wang, Baolian

AU - Yang, Zhishu

N1 - Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to [email protected].

PY - 2019/4/1

Y1 - 2019/4/1

N2 - We examine the trading behavior of Chinese domestic investors after they were given access to the B-share market in 2001. Surprisingly, we find that only 2% of investors began buying B shares. Even among these 2%, investors were less likely to buy B shares if they had more experience in the A-share market, and vice-versa. Thus, prior market experience limits the extent to which investors respond to A/B-share premiums and liquidity and lowers their performance. Our findings cannot be explained by government intervention, investor heterogeneity, foreign currency constraint, A/B-share liquidity or speculation differentials, or information advantage. © 2019

AB - We examine the trading behavior of Chinese domestic investors after they were given access to the B-share market in 2001. Surprisingly, we find that only 2% of investors began buying B shares. Even among these 2%, investors were less likely to buy B shares if they had more experience in the A-share market, and vice-versa. Thus, prior market experience limits the extent to which investors respond to A/B-share premiums and liquidity and lowers their performance. Our findings cannot be explained by government intervention, investor heterogeneity, foreign currency constraint, A/B-share liquidity or speculation differentials, or information advantage. © 2019

KW - A/B share prices

KW - Portfolio inertia

KW - Trading experience

KW - Trading performance

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DO - 10.1016/j.jbankfin.2019.02.002

M3 - RGC 21 - Publication in refereed journal

SN - 0378-4266

VL - 101

SP - 59

EP - 76

JO - Journal of Banking and Finance

JF - Journal of Banking and Finance

ER -

Why investors do not buy cheaper securities: Evidence from a natural experiment

Abstract

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Research Keywords

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