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Investor trading behaviour and stock price crash risk

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  • Liyun Zhou
  • Jialiang Huang

Abstract

This paper sheds new light on the relation between investor trading behaviour and crash risk to examine how investors react to stocks with lottery features in Chinese Stock Market. We find that investor trading behaviour has a greater impact on stocks with higher crash risk, which implies that investors overreact to stocks with higher stock price crash risk. Furthermore, investor trading behaviour has strongest effects on stocks with highest crash risk and highest idiosyncratic risk and has weakest effects on stocks with lowest crash risk and lowest idiosyncratic risk, which indicates that investors gamble lottery‐like stocks with high crash risk and high idiosyncratic risk. Collectively, these results support a role for investor trading behaviour in the formation of stock returns.

Suggested Citation

  • Liyun Zhou & Jialiang Huang, 2019. "Investor trading behaviour and stock price crash risk," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 24(1), pages 227-240, January.
    • Handle: RePEc:wly:ijfiec:v:24:y:2019:i:1:p:227-240
    DOI: 10.1002/ijfe.1659
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    Cited by:

    1. Jing, Zhongbo & Li, Qin & Zhao, Hongyi & Zhao, Yang, 2024. "Predicting stock price crash risk in China: A modified graph WaveNet model," Finance Research Letters, Elsevier, vol. 64(C).
    2. Jing Shi & Marcel Ausloos & Tingting Zhu, 2022. "If global or local investor sentiments are prone to developing an impact on stock returns, is there an industry effect?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 1309-1320, January.
    3. Hongmin Jin & Lu Wang & Zuoping Xiao & Hung‐Gay Fung, 2023. "What firm risk factors drive bank loan pricing and other terms? Evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(3), pages 2985-3010, September.
    4. Cheng, Feiyang & Wang, Chunfeng & Chiao, Chaoshin & Yao, Shouyu & Fang, Zhenming, 2021. "Retail attention, retail trades, and stock price crash risk," Emerging Markets Review, Elsevier, vol. 49(C).
    5. Zhong, Xi & Ren, Liuyang & Song, Tiebo, 2021. "Different effects of internal and external tournament incentives on corporate financial misconduct: Evidence from China," Journal of Business Research, Elsevier, vol. 134(C), pages 329-341.
    6. Mahdi Moradi & Andrea Appolloni & Grzegorz Zimon & Hossein Tarighi & Maede Kamali, 2021. "Macroeconomic Factors and Stock Price Crash Risk: Do Managers Withhold Bad News in the Crisis-Ridden Iran Market?," Sustainability, MDPI, vol. 13(7), pages 1-16, March.
    7. Lien, Donald & Hung, Pi-Hsia & Lo, Hsiang-Yu, 2022. "Order Choices: An Intraday Analysis of the Taiwan Stock Exchange," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).
    8. Jinfang Li, 2021. "The term structure effects of individual stock investor sentiment on excess returns," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 1695-1705, April.

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