IDEAS home Printed from https://ideas.repec.org/a/wsi/serxxx/v65y2020i06ns0217590818500078.html
   My bibliography  Save this article

Retail Investors’ Biased Beliefs About Stocks That They Hold: Evidence From China’S Split Share Structure Reform

Author

Listed:
  • YAN LUO

    (School of Management, Fudan University, No. 670 Guoshun Road, Shanghai 200433, P. R. China)

  • XIAOLIN QIAN

    (Faculty of Business Administration, University of Macau, Av. Padre Tomás Pereira, Taipa, Macau)

  • JINJUAN REN

    (Faculty of Business Administration, University of Macau, Av. Padre Tomás Pereira, Taipa, Macau)

  • YANJIAN ZHU

    (Academy of Financial Research, College of Economics, Zhejiang University, 38 Zheda Road, Hangzhou, P. R. China)

Abstract

We investigate the compensation plans during China’s split share structure reform, a unique event that affected the entire market and in which investors’ opinions over stock values can be measured. We find that anchoring effects and accruals biased investors’ valuations. Although previous studies have observed investor’s biased belief from their irrational trading behavior, our study provides direct evidence of their biases regarding stock values. In particular, the compensation ratio was lower for stocks with prices closer to the historical high and further from the 52-week high, for stocks with higher accruals and for stocks with higher misvaluations relative to industry peers. In addition, we find a strong herding effect for the compensation ratios of firms that had already completed the reform. These results are robust to control for the effects of risk sharing, differences in bargaining power, the price impact from the increased number of tradable shares and liquidity.

Suggested Citation

  • Yan Luo & Xiaolin Qian & Jinjuan Ren & Yanjian Zhu, 2020. "Retail Investors’ Biased Beliefs About Stocks That They Hold: Evidence From China’S Split Share Structure Reform," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 65(06), pages 1579-1599, December.
    • Handle: RePEc:wsi:serxxx:v:65:y:2020:i:06:n:s0217590818500078
    DOI: 10.1142/S0217590818500078
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S0217590818500078
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1142/S0217590818500078?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:serxxx:v:65:y:2020:i:06:n:s0217590818500078. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscinet.com/ser/ser.shtml .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.