On Feedback Trading Behaviors of Chinese Investors

This paper devotes a first and direct attention on the feedback trading behaviors of one of the largest investor populations in the world. Using a unique data set of historical stock transaction, we examine cross-sectional and time-varying buy-sell activities of Chinese investor as a function of a series of stock returns in past. The time-horizons over which investors trade in response to return variables are identified. Based on that, both positiveand negative-feedback trading patterns are uncovered, though observed patterns vary significantly across investor subcategories. We examine the existence of size dependence of investor feedback trading patterns in subsequence and reconcile disparate evidence with the literature. Our results may imply a potential destabilizing effect on stock prices from positive-feedback trading, which accounts for significant market funds and tilts towards a small set of stocks. The results are therefore relevant to both investor behaviors and stock pricing.