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Individual Investors and R^2

Author

Listed:
  • Jinghan Cai

    (University of Scranton)

  • Jia He

    (Southern University of Science and Technology)

  • Jibao He

    (Shenzhen Stock Exchange)

  • Weili Zhai

    (Shenzhen University)

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.

Suggested Citation

  • Jinghan Cai & Jia He & Jibao He & Weili Zhai, 2019. "Individual Investors and R^2," Economics Bulletin, AccessEcon, vol. 39(1), pages 159-165.
    • Handle: RePEc:ebl:ecbull:eb-18-00973
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    File URL: http://www.accessecon.com/Pubs/EB/2019/Volume39/EB-19-V39-I1-P16.pdf
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    Citations

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    Cited by:

    1. Li, Fengyun & Petsas, Iordanis & Cai, Jinghan, 2020. "Corporate events, return synchronicity and price efficiency," The Journal of Economic Asymmetries, Elsevier, vol. 21(C).

    More about this item

    Keywords

    individual investor; R^2; trend investor;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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