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Why investors do not buy cheaper securities: Evidence from a natural experiment

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  • Chan, Kalok
  • Wang, Baolian
  • Yang, Zhishu

Abstract

We examine the trading behavior of Chinese domestic investors after they were given access to the B-share market in 2001. Surprisingly, we find that only 2% of investors began buying B shares. Even among these 2%, investors were less likely to buy B shares if they had more experience in the A-share market, and vice-versa. Thus, prior market experience limits the extent to which investors respond to A/B-share premiums and liquidity and lowers their performance. Our findings cannot be explained by government intervention, investor heterogeneity, foreign currency constraint, A/B-share liquidity or speculation differentials, or information advantage.

Suggested Citation

  • Chan, Kalok & Wang, Baolian & Yang, Zhishu, 2019. "Why investors do not buy cheaper securities: Evidence from a natural experiment," Journal of Banking & Finance, Elsevier, vol. 101(C), pages 59-76.
    • Handle: RePEc:eee:jbfina:v:101:y:2019:i:c:p:59-76
    DOI: 10.1016/j.jbankfin.2019.02.002
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    More about this item

    Keywords

    A/B share prices; Portfolio inertia; Trading experience; Trading performance;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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