Trading for Status. (1st August 2014)

• Record Type: Journal Article
• Authors: Hong, Harrison; Jiang, Wenxi; Wang, Na; Zhao, Bin
• Is Part Of: Review of financial studies. Volume 27:Number 11(2014:Nov.)
• Page Start: 3171
• Page End: 3212
• Publication Date: 2014-08-01
• Subjects: G02 -- G11 -- G12; Finance -- United States -- Periodicals; Finance -- Periodicals; 332
• DOI: 10.1093/rfs/hhu048
• Languages: English
• ISSNs: 0893-9454

Abstract

Abstract : We show that Keeping-Up-with-the-Joneses preferences can explain several puzzling retail investor behaviors, including the excessive trading of small local stocks. Status concerns lead households, especially those living in affluent areas, to demand these stocks to track their neighbors' wealth. This demand varies procyclically with the stock market's value and generates household trading. Using Chinese data on local stock turnover, stock message boards, and brokerage account trading, we test and confirm this hypothesis by exploiting the uneven rise of affluence across Chinese cities between 1998 and 2012.