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What drives individual investors in the bear market?

Author

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  • Xu, Rong
  • Liu, Yaodong
  • Hu, Nan
  • Guo, Jie (Michael)

Abstract

This study uses a unique dataset from a large anonymous brokerage firm to examine the net investment of individual investors during a bear market. The study's empirical evidence reveals that individual investors provide liquidity by acting as net buyers. Particularly, male and younger investors tend to have a higher buying intensity than the others during the market downturn. Besides, better performances when the market crashed encourage investors to be overconfident, thus exhibiting self-attribution bias since we do not find similar results in the bull-market subsample. Results from the stock-level analysis imply that investors tend to buy stocks with worse short-term past performance, higher liquidity, and larger market capitalization. Our findings on the individual investor trading behaviour cannot be explained by either a superior stock-picking ability or a higher tendency to gamble during the market downswing.

Suggested Citation

  • Xu, Rong & Liu, Yaodong & Hu, Nan & Guo, Jie (Michael), 2022. "What drives individual investors in the bear market?," The British Accounting Review, Elsevier, vol. 54(6).
    • Handle: RePEc:eee:bracre:v:54:y:2022:i:6:s0890838922000427
    DOI: 10.1016/j.bar.2022.101113
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