Momentum, Reversals, and Investor Clientele
Different share classes on the same firms provide a natural experiment to explore how investor clienteles affect momentum and short-term reversals. Domestic retail investors have a greater presence in Chinese A shares, and foreign institutions are relatively more prevalent in B shares. These differences result from currency conversion restrictions and mandated investment quotas. We find that only B shares exhibit momentum and earnings drift, and only A shares exhibit monthly reversals. Institutional ownership strengthens momentum in B shares. These patterns accord with a setting where momentum is caused by informed investors who underreact to fundamental signals, and short-term reversals represent premia to absorb the demands of noise traders. Overall, our findings confirm that clienteles matter in generating stock return predictability from past returns.
Published Versions
Andy C W Chui & Avanidhar Subrahmanyam & Sheridan Titman, 2022. "Momentum, Reversals, and Investor Clientele," Review of Finance, vol 26(2), pages 217-255. citation courtesy of 
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