The identical cash flow rights of Chinese A and B shares provide a natural experiment that allows us to explore how investor clienteles affect stock return patterns. Chinese domestic retail investors are responsible for the majority of trades in A shares, while foreign institutional investors...

We use proprietary brokerage data to study trading patterns within a well-known financial market bubble: that in the Chinese warrants market. Persistently successful investors traded very actively and exhibited characteristics of de facto market makers. Unskilled investors unprofitably...

The security market line (SML) accords with the capital asset pricing model (CAPM) by taking on an upward slope in pessimistic sentiment periods, but is downward sloping during optimistic periods. We hypothesize that this finding obtains because periods of optimism attract equity investment by...

This paper sheds empirical light on whether sentiment affects the profitability of price momentum strategies. We hypothesize that news that contradicts investors' sentiment causes cognitive dissonance, which slows the diffusion of signals that oppose the direction of sentiment. This phenomenon...

We develop a model where overconfident investors overestimate their own signal quality but are skeptical of others'. Those investors who are initially uninformed believe that the early informed have learned little, leading the former investors to provide excess liquidity, which, in turn, causes...

How might markets exhibit both short-term reversals and longer-term momentum? Motivated by this question, we develop a dynamic model which includes noise traders and investors who underreact to signals that they do not themselves produce. Our setting implies the following: Return predictability...