Daily Momentum and New Investors in an Emerging Stock Market

Abstract

The absence of medium-term price momentum in the Chinese stock market, despite its dominance by retail investors prone to cognitive biases, is a well-known puzzle. Our study finds that daily returns, instead of monthly returns, display price momentum and attributes it to the trading behaviors of new investors using account-level transaction data. The results highlight the heterogeneity among retail investors and the significant impact of new investors, whose presence is particularly relevant for emerging stock markets. We also show that daily price momentum is present in several other emerging markets but less prevalent in developed markets.