Momentum, Reversals, and Investor Clientele

Andy C. W. Chui (), Avanidhar Subrahmanyam and Sheridan Titman

No 29453, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Different share classes on the same firms provide a natural experiment to explore how investor clienteles affect momentum and short-term reversals. Domestic retail investors have a greater presence in Chinese A shares, and foreign institutions are relatively more prevalent in B shares. These differences result from currency conversion restrictions and mandated investment quotas. We find that only B shares exhibit momentum and earnings drift, and only A shares exhibit monthly reversals. Institutional ownership strengthens momentum in B shares. These patterns accord with a setting where momentum is caused by informed investors who underreact to fundamental signals, and short-term reversals represent premia to absorb the demands of noise traders. Overall, our findings confirm that clienteles matter in generating stock return predictability from past returns.

JEL-codes: G02 G12 G14 (search for similar items in EconPapers)
Date: 2021-11
New Economics Papers: this item is included in nep-fmk
Note: AP
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Citations: View citations in EconPapers (2)

Published as Andy C W Chui & Avanidhar Subrahmanyam & Sheridan Titman, 2022. "Momentum, Reversals, and Investor Clientele," Review of Finance, vol 26(2), pages 217-255.

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