Heterogeneity in Retail Investors: Evidence from Comprehensive Account-Level Trading and Holdings Data

Abstract

Retail investors are heterogeneous, with vast differences in wealth, skills and demographics. Using comprehensive proprietary account-level data on trading and holdings from the Shanghai Stock Exchange from 2016 to 2019, we separate tens of millions of retail investors into five groups by their account sizes as well as other demographic variables, and we examine their trading behavior and return performance in Chinese equities. Retail investors with account sizes less than three million CNY follow momentum trading strategies, and the prices of stocks they buy experience negative returns next day, while the ones they sell experience positive returns. In contrast, retail investors with larger account balances follow contrarian strategies, and they buy and sell stocks in directions consistent with future price movements. In addition, retail investors with smaller account sizes fail to process public news and they incur losses from trading, while retail investors with larger account sizes incorporate public news in their trading and experience trading gains. These patterns are stronger for young male retail investors.