Trading for Status

Abstract

We test the hypothesis that status preference amplies trading activity in stock markets. This preference leads to demand for local stocks to track neighbors that rises with the stock market and generates trading between status and non-status seekers. We use an empirical design from China, where we measure intensity of status concerns by province based on income and luxury brand internet searches controlling for income. Using large stocks to control for investment sets across provinces, we nd higher share turnover and a higher sensitivity of turnover to returns for small relative to big stocks in high-status concern compared to low-status concern provinces. These dierences have increased in recent years with a rising middle class in China. Local small stocks in high-status concern provinces also have higher prices.