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Income, trading, and performance: Evidence from retail investors

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  • Bui, Dien Giau
  • Hasan, Iftekhar
  • Lin, Chih-Yung
  • Zhai, Rui-Xiang

Abstract

We examine whether household income influences the trading styles of retail investors and their investment performance. To investigate this question, we use a unique dataset of branch-level trading that contains all retail investors and observe that those investors with high income trade more and earn significantly higher returns in the stock market. In addition, this income effect becomes stronger for highly risky stocks, such as gambling or lottery-like stocks. These findings are in line with the information model theorized by Peress (2004) in which wealthy investors take extra risks by trading more stocks.

Suggested Citation

  • Bui, Dien Giau & Hasan, Iftekhar & Lin, Chih-Yung & Zhai, Rui-Xiang, 2022. "Income, trading, and performance: Evidence from retail investors," Journal of Empirical Finance, Elsevier, vol. 66(C), pages 176-195.
    • Handle: RePEc:eee:empfin:v:66:y:2022:i:c:p:176-195
    DOI: 10.1016/j.jempfin.2022.01.006
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    More about this item

    Keywords

    Household income; Retail investor; Trading behavior; Gambling stocks; Lottery-like stocks;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G40 - Financial Economics - - Behavioral Finance - - - General

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