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Retail investors’ escaping from the bottom and clustering at the top of the trend in China

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  • Wu, Xiang
  • Zhang, Bing

Abstract

This study investigates the bottom and top of the trend few researchers have focused on. Combining this with the behavior of retail investors in the unique Chinese stock market, we find that retail investors easily escape from the bottom of the trend, but cluster at the top. This finding holds after a series of robustness checks containing the other measurements of the bottom and top of the trend, the measurement of retail investors’ money flow, the trend selection of major shareholders, and the longer forecasting windows. The reasons for the retail investors’ behavior is that retail investors are stimulated by sentiment and captured by attention to buy at the top of the trend. Moreover, we find losing patience of retail investors impels the escaping from the bottom of the trend. Further analyses illustrate listed companies engaging in earnings management exacerbate retail investors’ clustering at the top and escaping from the bottom, but this issue can be mitigated through improvements in corporate governance and proactive market value management.

Suggested Citation

  • Wu, Xiang & Zhang, Bing, 2024. "Retail investors’ escaping from the bottom and clustering at the top of the trend in China," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 875-904.
    • Handle: RePEc:eee:reveco:v:93:y:2024:i:pb:p:875-904
    DOI: 10.1016/j.iref.2024.04.032
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    More about this item

    Keywords

    Bottom and top; Trend preference; Investor sentiment; Retail investors’ patience;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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