Lookup NU author(s): Professor Darren Duxbury
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY-NC-ND).
While it has been demonstrated that momentum or contrarian trading strategies can be profitable in a range of institutional settings, less evidence is available concerning the actual trading strategies investors adopt. Standard definitions of momentum or contrarian trading strategies imply that a given investor applies the same strategy to both their buy and sell trades, which need not be the case. Using investor-level, transaction-based data from China, where tax effects are neutral, we examine investors’ buy-sell decisions separately to investigate how past returns impact differentially on the trading strategies investors adopt when buying and selling stock. After controlling for a wide range of stock characteristics, extreme price changes and portfolio value, a clear asymmetry in trading is observed; with investors displaying momentum behavior when buying stocks, but contrarian behavior when selling stocks. This asymmetry in behavior is not driven purely by reactions to stock characteristics or extreme stocks. We discuss behavioral and cultural explanations for our findings.
Author(s): Duxbury D, Yao S
Publication type: Article
Publication status: Published
Journal: International Review of Financial Analysis
Print publication date: 01/07/2017
Online publication date: 13/05/2017
Acceptance date: 12/05/2017
Date deposited: 12/05/2017
ISSN (print): 1057-5219
ISSN (electronic): 1873-8079
Publisher: Elsevier BV
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