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Retail Trading and Return Predictability in China

Author

Listed:
  • Jones, Charles M.
  • Shi, Donghui
  • Zhang, Xiaoyan
  • Zhang, Xinran

Abstract

Using comprehensive account-level data, we separate Chinese retail investors into 5 groups and document strong heterogeneity in trading dynamics and performances. Retail investors with smaller account sizes cannot predict future returns correctly, display daily momentum patterns, fail to process public news, and show overconfidence and gambling preferences, while retail investors with larger account balances predict future returns correctly, display contrarian patterns, and incorporate public news in trading. Using performance measures established in previous literature, we find that smaller retail investors suffer from poor stock selection abilities and trading costs, while large retail investors’ stock selection abilities are offset by trading costs.

Suggested Citation

  • Jones, Charles M. & Shi, Donghui & Zhang, Xiaoyan & Zhang, Xinran, 2025. "Retail Trading and Return Predictability in China," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 60(1), pages 68-104, February.
    • Handle: RePEc:cup:jfinqa:v:60:y:2025:i:1:p:68-104_3
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    Citations

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    Cited by:

    1. Wang, Chenhao & Zhang, Ting & Zhu, Shanyi, 2026. "Big data recommendations and portfolio diversification: evidence from account-level data," Finance Research Letters, Elsevier, vol. 92(C).
    2. Chen, Ziang & Zhang, Junrui & Liu, Tingting, 2025. "Coordinator or colluder: Institutional investor network and excess goodwill," Finance Research Letters, Elsevier, vol. 86(PB).
    3. Gebka, Bartosz & Jin, Han & Kallinterakis, Vasileios & Karaa, Rabaa & Slim, Skander, 2026. "Herding and informed trading: Evidence from Chinese equity markets," Journal of Economic Behavior & Organization, Elsevier, vol. 241(C).
    4. Zhao, Xia & Hu, Qing & Song, Yuping & Huang, Jiefei, 2025. "Systemic risk spillovers incorporating investor sentiment: Evidence from an improved TENET analysis," Economic Modelling, Elsevier, vol. 151(C).
    5. Frank Ecker & Xitong Li & Yilan Li & Fan Wu, 2026. "How Stock Market Participants Use Generative Artificial Intelligence: Evidence from User‐Platform Interaction Data," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 64(3), pages 1375-1426, June.
    6. Chen, Rongda & Wang, Maochuan & Yi, Yuyang & Gao, Yuanhao, 2026. "Democratizing corporate governance: How retail investors’ ESG attention reduces ESG-washing," International Review of Economics & Finance, Elsevier, vol. 105(C).
    7. Zhan, Yaosong & Ling, Shiqing & Liu, Zhenya & Wang, Shixuan, 2025. "Modeling bimodal stock price dynamics by a parsimonious diffusion process," International Review of Financial Analysis, Elsevier, vol. 105(C).
    8. Sui, Yanjun & Tian, Xiao & Zhong, Angel & Chiah, Mardy, 2025. "Beyond the final whistle: AFL grand final and retail investor trading," Finance Research Letters, Elsevier, vol. 85(PD).
    9. Chang Ma & Alessandro Rebucci & Sili Zhou, 2025. "A Nascent International Financial Channel of China’s Monetary Policy Transmission," NBER Working Papers 34291, National Bureau of Economic Research, Inc.
    10. Liu, Yakun & Chen, Yan & Zhang, Lei & Deng, Xi, 2026. "Forecasting stock return: The role of idiosyncratic asymmetry risk," Journal of International Money and Finance, Elsevier, vol. 160(C).
    11. Fu, Jinlin & Lu, Xiaomeng & Xie, Yuxin & Wang, Binxu, 2025. "Are active mutual fund managers skilled in picking stock concepts?," International Review of Economics & Finance, Elsevier, vol. 103(C).
    12. Jaeram Lee & Doojin Ryu & Robert Webb, 2026. "How do option contract sizes affect investor composition and market quality?," Review of Derivatives Research, Springer, vol. 29(1), pages 1-33, December.
    13. Nan Li & Shuai Xing & Yunhao Huang & Yi‐ching Chien, 2026. "The Pricing of Stock Uncertainty Under Short‐Sale Constraints in the China Stock Market," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 66(2), pages 1322-1345, June.

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