Empowered by comprehensive data on smartphone fund investors’ trading and browsing histories from a Chinese financial company, we explore the role of investors’ financial attention in influencing the relationship between unrealized profits and investors’ selling decisions. Against a backdrop in which retail investors are not attentive to their portfolio information, we find supportive evidence suggesting that investors exhibit realization preference when we condition on days when investors pay financial attention. Further, we show that failing to account for investors’ financial inattention may induce observers to reject the realization-preference hypothesis. This paper also offers insights into the determinants of financial attention and the influence of financial attention on investor disposition effect.

We examine how stakes affect investor behaviors. In our unique setting, the same investors trade stocks in real accounts using their own money and, at the same time, trade in a simulated setting. Our real-world within-investor estimation produces strong evidence that investors exhibit stronger biases and perform worse in their higher-stakes real accounts than in their lower-stakes simulated accounts. Even with no monetary stakes, investors exhibit strong biases in their simulated accounts, and biases in the two types of accounts are strongly positively correlated. Such behavioral consistency suggests that low-stakes experimental methods, although imperfect, can be informative about real-world human behaviors. Using account data from two brokerage companies, we find that investors exhibit a stronger disposition effect on positions with greater portfolio weight. Hence, the finding that stakes-strengthening-biases may not be unique to the comparison between no-monetary and high-monetary stakes.

We examine whether investor behavior can be influenced by the social norms to which they are exposed. Specifically, we test two competing hypotheses regarding the influence of social trust on the disposition effect related to mutual fund investment. On the one hand, a higher level of social trust may elicit stronger investor reactions by increasing the credibility of the performance numbers reported by funds. This results in higher flow-performance sensitivity, which mitigates investors’ tendency to sell winners and hold onto losers. On the other hand, societal trust may reduce concerns about expropriation, thereby weakening investors’ need to react to poor performance. The resulting lower flow-performance sensitivity increases the disposition effect. Based on a proprietary dataset of complete account-level trading information for all investors in a large mutual fund family in China, we find compelling evidence 1) of a significant disposition effect among fund investors; 2) that a higher degree of social trust is associated with higher flow-performance sensitivity; and 3) that (high) trust-induced flows mitigate the disposition effect. Our results suggest that, in addition to cognitive biases, investor behavior is also strongly influenced by social norms.

In this paper, we study market crowd psychological behaviors in learning by correlation analysis, using every trading high frequency data in China stock market. We introduce a notion of trading conditioning in terms of operant conditioning in psychology and measure its intensity by accumulative trading volume probability in a time interval in the transaction price-volume probability wave equation that can describe market crowd coherence in their interacted trading behavior. We find that there is, in general, significant positive correlation between the rate of price volatility mean return and the change in the intensity of market crowd trading conditioning. They behave significantly disposition effect in stock selling and herd behavior in stock buying with expectation on return simultaneously. Specifically, “the herd” have significant stronger expectation on price momentum than its reversal. Second, there is also a significant negative correlation between them in a subdivided term; market crowd show buy-and-hold behavior when price rises steadily, and panic selling when it drops abruptly in depth. We explain both the puzzle of more peaked, heavily tailed, and clustered characteristics in return distribution by coherence and that of market crowd behavioral “anomalies” by trading conditioning in a unified transaction price-volume probability wave framework.

We develop a theoretical trading conditioning model subject to price volatility and return information in terms of market psychological behavior, based on analytical transaction volume-price probability wave distributions in which we use transaction volume probability to describe price volatility uncertainty and intensity. Applying the model to high frequent data test in China stock market, we have main findings as follows: 1) there is, in general, significant positive correlation between the rate of mean return and that of change in trading conditioning intensity; 2) it lacks significance in spite of positive correlation in two time intervals right before and just after bubble crashes; and 3) it shows, particularly, significant negative correlation in a time interval when SSE Composite Index is rising during bull market. Our model and findings can test both disposition effect and herd behavior simultaneously, and explain excessive trading (volume) and other anomalies in stock market.

Based on prospect theory and individual investors’ biases such as representativeness heuristic and conservatism, we establish a behavioral model to explain the contrarian effect in China’s financial market. We find that contrarian effect is mainly attributed to trend chasing instead of disposition effect. Our model also suggests that small-cap stocks show stronger contrarian effect, phenomena confirmed by empirical research.