Using a proprietary database of stock transactions in China, we document significant trading disparities between retail and institutional investors around important macro announcements. These disparities are driven by differences in information positions. We find that before the monthly releases of China’s key monetary aggregates data, institutional investors reduce their stock exposure and shift towards riskier, smaller-cap stocks. In contrast, retail investors increase their stock exposure and avoid riskier stocks. The risk positions of institutional investors are compensated by the pre-announcement premium in smaller stocks. Following the announcements, institutional investors trade in line with news surprises, contributing to price discovery and reinforcing monetary policy transmission into asset prices. Our findings have implications for understanding announcement-related equity premium and for evaluating the general efficiency of stock market in China.

This paper studies a novel channel through which climate risks affect households’ choices of risky asset allocation: a stringent climate change regulation elevates labor income risk for households employed by high-emission industries which in turn discourages households' financial risk-taking. Using staggered adoptions of climate change action plans across states, we find that climate change action plans lead to a reduction in the share of risky assets by 15% for households in high-emission industries. We also find a reduction in risky asset holdings after the stringent EPA regulation. These results are stronger with experiences of climate change-related disasters. Our study implies an unintended consequence of climate regulations for wealth inequality by discouraging low-wealth households' financial risk-taking.

This paper investigates the causal effects of air pollution on housing prices in China using a dataset of 65 cities from 2014 to 2021. We employ the central environmental protection inspection (CEPI) as a quasi-natural experiment for air pollution index to show a negative causal relationship between air pollution and housing prices. We also find that this causal relationship is more pronounced for less-developed, manufacturing-intensive and tourismrelied cities. Our results reveal the response to central environmental protection inspection on improvement in regional air pollution protection but its by-effects on housing markets, as the impact is limited if the inspection is conducted repeatedly, suggesting its unsustainability as a regulatory tool.

By using a unique proprietary dataset and implementing the Wuhan (China) lockdown from January to April 2020 as a natural experiment, we find that individual mutual fund investors in Wuhan significantly reduced their trading frequency, total investment of their portfolios, and risk level of their invested funds during the lockdown period as compared to investors in other cities. These changes are stronger for older investors and are reversed soon after the lifting of the lockdown. Our results suggest that the elimination of face-to-face interaction among individual investors reduced their information sharing, which led to more conservatism in their financial trading. These results are not supported by the alternative explanations of limited investor attention and temporary changes in personal circumstances, including depression and/or income reduction, during the lockdown period. Finally, consistent with the theory of naïve investor trading, we also find that investors received higher trading returns during the lockdown.

Analyzing data from Chinese online interactive investor platforms, our study reveals that Minority Shareholder Activism (MSA) effectively curtails informed insider trading by voting with their hands or feet, particularly in firms with weaker external monitoring. MSA not only reduces the profitability of insider trading but also encourages firms and regulators to implement stricter ex-post disciplinary measures. Moreover, MSA alleviates the negative impact of insider trading on the stock market by enhancing stock liquidity, increasing stock price informativeness, and reducing crash risk.

Does large-scale privatization increase income inequality? To answer this question, we analyze the impact of China’s reform of state-owned enterprises on labor market outcomes in urban areas from 1992 to 2004, exploiting cross-prefecture variation in reform exposure stemming from initial differences in the employment shares of urban collective enterprises and state-owned enterprises. Our analysis reveals that workers in prefectures with higher exposure to the reform experienced a more rapid decline in employment and a slower increase in income, compared to those in less exposed areas. Further analysis shows that individuals with lower income and those with lower educational attainment experienced greater losses. A backof-the-envelope analysis indicates that the reform contributed to more than 40% of the study period’s increase in income inequality.

Rural banking competition may promote or hinder agricultural total factor productivity (TFP). We analyze a novel dataset on all commercial bank branches in rural China, combined with measures of productivity based on stochastic frontier analysis. To identify causality, we use: 1) an instrumental variable approach based on the administrative division of banks, and 2) a propensity score matching difference-in-difference approach exploiting banking de-regulations in 2009. Both methods reveal that competition has a positive impact on TFP. A heterogeneity analysis finds that the effect is primarily significant along the Beijing-Kowloon railway and its East side. Technology adoption is the typical channel through which lending is hypothesized to impact TFP. We find that the positive effect of competition is larger in areas with greater technology use, but we find an insignificant direct impact of concentration on technology adoption, suggesting the channels of effect may be more complex than previously thought.

This paper investigates the impact of two global crises, the global financial crisis and the COVID-19 crisis, on herding behavior in the Chinese and U.S. stock markets. We find no evidence of herding behavior during these two global crises in the U.S. stock market, yet significant herding emerges under the COVID-19 crisis in Chinese mainland stock market. Additionally, the observed herding behavior in mainland China is primarily driven by sentiment. Our results reveal and explain the differences in the effects of financial crisis and public health crisis on herding behavior, as well as variations between emerging and developed stock markets.

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The study finds that analyst skill plays a key factor to explain the complicated and chaotic relation between analyst coverage and external governance. We divide analysts into multiple skill groups by GMM (Gaussian mixture model) method, and explore the effect of the coverage by skilled analysts on earnings management in Chinese listed companies. The results indicate that only the coverage of skilled analysts shows a significant negative correlation with earnings management. Heterogeneity analysis reveals that the negative relationship between the coverage of skilled analysts and earnings management is primarily observed in non-state-owned companies, those with weaker external audits, and smaller-scale firms. The conclusion remains robust after considering endogeneity issues. The findings of this study suggest that incorporating analyst skill contributes to a better understanding of the mechanisms through which analysts influence corporate governance. It also highlights that the role of analysts in corporate governance cannot be generalized.