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Momentum, Reversals, and Investor Clientele

Author

Listed:
  • Andy C.W. Chui
  • Avanidhar Subrahmanyam
  • Sheridan Titman

Abstract

Different share classes on the same firms provide a natural experiment to explore how investor clienteles affect momentum and short-term reversals. Domestic retail investors have a greater presence in Chinese A shares, and foreign institutions are relatively more prevalent in B shares. These differences result from currency conversion restrictions and mandated investment quotas. We find that only B shares exhibit momentum and earnings drift, and only A shares exhibit monthly reversals. Institutional ownership strengthens momentum in B shares. These patterns accord with a setting where momentum is caused by informed investors who underreact to fundamental signals, and short-term reversals represent premia to absorb the demands of noise traders. Overall, our findings confirm that clienteles matter in generating stock return predictability from past returns.

Suggested Citation

  • Andy C.W. Chui & Avanidhar Subrahmanyam & Sheridan Titman, 2021. "Momentum, Reversals, and Investor Clientele," NBER Working Papers 29453, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:29453
    Note: AP
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    Cited by:

    1. Gharghori, Philip & Nguyen, Annette, 2025. "Which factors in China? A pre-registered report," Pacific-Basin Finance Journal, Elsevier, vol. 91(C).
    2. George, Thomas J. & Hwang, Chuan-Yang & Li, Yuan, 2023. "February, share turnover, and momentum in China," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).
    3. Yao, Shouyu & Qin, Yuanyuan & Cheng, Feiyang & Wu, Ji(George) & Goodell, John.W., 2022. "Missing momentum in China: Considering individual investor preference," Finance Research Letters, Elsevier, vol. 49(C).
    4. Finn Christian Simonn, 2025. "Past, Present, and Future Research Trajectories on Retail Investor Behaviour: A Composite Bibliometric Analysis and Literature Review," IJFS, MDPI, vol. 13(2), pages 1-47, June.
    5. Ge, Shuyi & Li, Shaoran & Zheng, Hanyu, 2025. "Diamond cuts diamond: News co-mention momentum spillover prevails in China," Journal of Banking & Finance, Elsevier, vol. 171(C).
    6. Esparcia, Carlos & Jareño, Francisco & Umar, Zaghum, 2022. "Revisiting the safe haven role of Gold across time and frequencies during the COVID-19 pandemic," The North American Journal of Economics and Finance, Elsevier, vol. 61(C).
    7. Dai, Yue & Chen, Minhao & Zuo, Zhengyu, 2023. "Neighbors in space: Satellite imagery and Chinese B-share discount," China Economic Review, Elsevier, vol. 82(C).
    8. Jian Chen & Ahmad Haboub & Ali Khan & Syed Mahmud, 2025. "Investor clientele and intraday patterns in the cross section of stock returns," Review of Quantitative Finance and Accounting, Springer, vol. 64(2), pages 757-797, February.
    9. Hameed, Allaudeen & Ni, Zhenghui & Tan, Chek Ann, 2023. "Momentum and individual investor trades: Evidence from Singapore," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).
    10. Daniel Hofmann & Karl Ludwig Keiber & Adalbert Luczak, 2024. "On the linkage of momentum and reversal – evidence from the G7 stock markets," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 48(3), pages 798-833, September.
    11. Cai, Xing & Xia, Wei & Huang, Weihua & Yang, Haijun, 2024. "Dynamics of momentum in financial markets based on the information diffusion in complex social networks," Journal of Behavioral and Experimental Finance, Elsevier, vol. 41(C).
    12. Yang, Zhuyu & Barroca, Bruno & Laffréchine, Katia & Weppe, Alexandre & Bony-Dandrieux, Aurélia & Daclin, Nicolas, 2023. "A multi-criteria framework for critical infrastructure systems resilience," International Journal of Critical Infrastructure Protection, Elsevier, vol. 42(C).
    13. Guoxiao Xia & Changsheng Hu & Huosong Xia & Yangchun Chi, 2023. "Different momentum effects across countries: An explanation based on investors' behavior," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 46(4), pages 1141-1163, December.
    14. Wang, Nianling & Zhang, Mingzhi & Zhang, Yuan, 2024. "Return prediction: A tree-based conditional sort approach with firm characteristics," Finance Research Letters, Elsevier, vol. 60(C).
    15. Jegadeesh, Narasimhan & Titman, Sheridan, 2023. "Momentum: Evidence and insights 30 years later," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).
    16. Wang, Wenhao & Zhang, Qingyi & An, Pengda & Cai, Feifei, 2024. "Momentum and reversal strategies with low uncertainty," Finance Research Letters, Elsevier, vol. 68(C).
    17. Zhang, Jiang, 2025. "International information flow and market quality," Journal of Banking & Finance, Elsevier, vol. 173(C).
    18. Cao, Zhengyu & Wang, Rundong & Xiao, Xinrong & Yin, Chengxi, 2023. "Disseminating information across connected firms — Analyst site visits can help," Journal of Empirical Finance, Elsevier, vol. 72(C), pages 510-531.
    19. Liu, Xin & Qiu, Zhigang & Shen, Luyao & Zheng, Weinan, 2023. "Coreversal: The booms and busts of arbitrage activities in China," Journal of Empirical Finance, Elsevier, vol. 71(C), pages 51-65.
    20. Guo, Jiaqi & Han, Xing & Li, Kai & Li, Youwei, 2025. "The nexus of overnight trend and asset prices in China," Journal of Economic Dynamics and Control, Elsevier, vol. 170(C).
    21. Xiong, Tao & Wang, Peng, 2023. "Institutional ownership and momentum in the Chinese A-share market," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    22. Lidia Maria BRUMA, 2023. "Cloud Incident Response - a Comprehensive Analysis," Informatica Economica, Academy of Economic Studies - Bucharest, Romania, vol. 27(4), pages 32-43.

    More about this item

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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