Individual Investors and R^2

Jinghan Cai (), Jia He (), Jibao He () and Weili Zhai ()
Additional contact information
Jinghan Cai: University of Scranton
Jia He: Southern University of Science and Technology
Jibao He: Shenzhen Stock Exchange
Weili Zhai: Shenzhen University

Economics Bulletin, 2019, vol. 39, issue 1, 159-165

Abstract: Some behavioral view of R^2 in the literature argues that lower R^2 may imply that the prices are less efficient, since lower R^2 may be the results of higher noise trader participation, and therefore the sum of squared errors is higher. This paper uses a novel dataset from Chinese stock market and directly checks the relationship between R^2 and noise trader participation. Cross-sectionally, we find no evidence supporting the negative relationship between R^2 and noise trader participation. Time-series wise, we find a case where R^2 positively comoves with noise trader participation. This paper casts doubt on the prediction that noise trader participation will lower the R^2.

Keywords: individual investor; R^2; trend investor (search for similar items in EconPapers)
JEL-codes: G1 (search for similar items in EconPapers)
Date: 2019-02-02
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Citations: View citations in EconPapers (1)

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