Individual Investors and the Financial Crisis

Abstract

This paper studies the trading behavior of individual Chinese investors before and during the recent…financial crisis.We have three major …findings: (i) individual investors did not withdraw their capital from the equity market during the crisis; instead, they reduced investments following portfolio gains; (ii) the asymmetric net‡ flow decisions are strongly influenced ‡by the disposition effect, in the absence of tax effects; this fi…nding holds over our entire sample period and it is even stronger during the crisis; (iii) individual investors revised their portfolios to hold relatively safer and more liquid stocks.

Keywords: individual investors, financial crisis, net flows, portfolio risk

JEL Classification: G01, G11, G15