RT Journal Article
SR Electronic
T1 In China A-Shares, Big Money Is Smart Money
JF The Journal of Investing
FD Institutional Investor Journals
SP joi.2022.1.240
DO 10.3905/joi.2022.1.240
A1 Xiang Nicole Liu
A1 Vivek Viswanathan
A1 Yingfan Xia
YR 2022
UL https://pm-research.com/content/early/2022/09/21/joi.2022.1.240.abstract
AB Using a dataset unique to China, the authors provide evidence that large trades earn excess returns in the China A-shares market. Stocks with net flows through large trades earn positive excess returns in the subsequent month, while stocks with net flows through small trades earn negative excess returns. The predictive power lasts up to two years. Large trades are correlated with institutional holdings by Qualified Foreign Institutional Investors (QFII) and Northbound Stock Connect investors. Moreover, mutual fund returns negatively load on the small net flows factor, suggesting that mutual funds earn their alpha partially from trading against uninformed small retail investors. Small net flows gravitate toward unprofitable, high-valuation, and low-momentum stocks, matching what the literature has found for small retail trader preference. Lastly, small- and medium-sized net flows predict negative subsequent profitability, while large and extra-large net flows predict positive subsequent profitability.