Do Attention-Grabbing Stocks Attract All Investors? Evidence from China

Zhuwei Li, Yongdong Shi, Wei Chen and Mohamed Kargbo

Emerging Markets Finance and Trade, 2014, vol. 50, issue S6, 158-183

Abstract: Using a unique and comprehensive data set of China’s Shenzhen Stock Exchange, we test whether all investors adopt attention-grabbing stocks. Only the less-wealthy individuals, the Small Group, are found to have the tendency to pursue attention-grabbing stocks, such as abnormal-volume stocks, extreme-return stocks, and initial public offering stocks. By contrast, wealthy individuals, such as the Middle and Large Groups, are the sellers of attention-grabbing stocks and prefer non-attention-grabbing stocks, thereby exhibiting a behavior resembling that of institutional investors. The wealth levels of individual investors may account for such heterogeneous trading behavior. Heterogeneous trading behavior may address one reason why only the less-wealthy individuals do poorly in China’s stock market. Accordingly, we suggest that the Small Group manage the stock selection problem through consultancy with investment institutions.

Date: 2014
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DOI: 10.1080/1540496X.2014.1013856

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