Momentum, Reversals, and Investor Clientele*

Illiquidity and stock returns: Cross-section and time-series effects

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

Review of Finance, 2022, vol. 26, issue 2, 217-255

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 short-term reversals (which represent inventory risk premia) prevail in a market dominated by noise traders and momentum prevails in markets where noise traders are less prevalent relative to informed investors who underreact to fundamental signals. Overall, our findings confirm that clienteles matter in generating stock return predictability from past returns.

Keywords: Anomalies; market efficiency; liquidity; behavioral finance (search for similar items in EconPapers)
JEL-codes: G11 G14 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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