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Retail investors’ biased beliefs about stocks that they hold: Evidence from China’s split share structure reform
Yan Luo1; Xiaolin Qian2; Jinjuan Ren2; Yanjian Zhu3
2018
Source PublicationThe Singapore Economic Review
ISSN0217-5908
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.

KeywordCognitive Bias Emerging Markets Behavioral Finance Misevaluation
DOI10.1142/S0217590818500078
Language英语
Fulltext Access
Citation statistics
Document TypeJournal article
CollectionFaculty of Business Administration
DEPARTMENT OF FINANCE AND BUSINESS ECONOMICS
Corresponding AuthorYanjian Zhu
Affiliation1.School of Management, Fudan University No. 670 Guoshun Road, Shanghai 200433, P. R. China
2.Faculty of Business Administration, University of Macau Av. Padre Tomás Pereira, Taipa, Macau
3.Academy of Financial Research, College of Economics Zhejiang University, 38 Zheda Road, Hangzhou, P. R. China
Recommended Citation
GB/T 7714
Yan Luo,Xiaolin Qian,Jinjuan Ren,et al. Retail investors’ biased beliefs about stocks that they hold: Evidence from China’s split share structure reform[J]. The Singapore Economic Review,2018.
APA Yan Luo,Xiaolin Qian,Jinjuan Ren,&Yanjian Zhu.(2018).Retail investors’ biased beliefs about stocks that they hold: Evidence from China’s split share structure reform.The Singapore Economic Review.
MLA Yan Luo,et al."Retail investors’ biased beliefs about stocks that they hold: Evidence from China’s split share structure reform".The Singapore Economic Review (2018).
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