Information Acquisition and Individual Investors’ Trading Behavior

Yaling Li, Ronghua Luo and Kailing Shen

ANU Working Papers in Economics and Econometrics from Australian National University, College of Business and Economics, School of Economics

Abstract: We examine individual investors’information acquisition and portfolio choice in a partial equilibrium model which predicts that portfolio size correlates positively with wealth and portfolios’stock-value-weighted average Sharpe ratio, negatively with risk aversion and portfolios’minimum Sharpe ratio, and portfolio size and composition both tend to remain stable over time. Empirical evidence based on stock transaction data from a Chinese brokerage strongly supports these predictions. A novel Contextualized Decision Echo Sampling method is used to overcome computational challenges caused by large option sets. Using it, we find investors are 37-fold more likely to buy stocks they bought previously.

Date: 2024-03
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