Macro Announcements and Heterogeneous Investor Trading in the Chinese Stock Market

摘要

Using a proprietary granular database of a major Chinese stock exchange, we examine heterogenous investors’ trading dynamics around one of the most important macro announcements of the Chinese central bank, the monthly release of monetary aggregates data. Exploiting the trading heterogeneity across assets and across investor types, we find that before announcements, institutional investors reduce their aggregate stock exposure while over-weighing riskier stocks of smaller caps, whereas retail investors provide liquidity by increasing their aggregate stock exposure and avoiding the riskier stocks. Large retail and institutional investors become more informed before announcements and trade in correct directions consistent with the news surprises after announcements, while smaller retail investors trade in opposite directions. While the institutional investors accumulate positive returns with risk compensated, the market realizes sizable pre-announcement equity premium. (Presented at CFRC 2024, CIFFP 2023, Seminar Series at Central University of Finance and Economics and Tsinghua University.)