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dc.contributorSchool of Accounting and Financeen_US
dc.contributor.advisorWei, K. C. John (AF)en_US
dc.creatorDu, Qingjie-
dc.identifier.urihttps://theses.lib.polyu.edu.hk/handle/200/11942-
dc.languageEnglishen_US
dc.publisherHong Kong Polytechnic Universityen_US
dc.rightsAll rights reserveden_US
dc.titleTwo essays on asset pricing and retail investorsen_US
dcterms.abstractThis thesis contains two essays. The commonality of the two essays is that I investigate the role and impact of the retail trading activities on the asset pricing in both essays. In the first essay, I focus on the option market, and investigate the impact of retail investors trading activities of the underlying stocks on the corresponding cross-sectional option returns. In the second essay, I decompose the aggregate retail order imbalance into pure buying order and pure selling order, and examine the pricing impact on the cross-sectional stock returns separately.en_US
dcterms.abstractSpecifically, in the first essay, I examine the relation between the cross-sectional delta-hedged option returns and the retail investor trading activities of the underlying stocks. I hypothesize that the option price could be affected either by the retail investor's gambling appetite or affected by the noise trader risk associated with retail trading activities. Empirically, I find that both call option returns and put option returns decrease as the retail trading volume of the underlying stocks increases. Further analysis shows that the retail trading order imbalance (i.e. the betting direction) does not predict future option returns, but that the volatility of retail trading activities does. The pricing effect of retail trading volume becomes stronger when retail trading is more volatile or when the stock's arbitrage cost is high. A test using Abel Noser data suggests that institutional trading activities do not affect the delta-hedged option returns. Overall, the results suggest that the trading activities of retail investors increase options' hedging costs and hedging difficulty, and option writers charge higher prices to compensate for this noise trader risk.en_US
dcterms.abstractIn the second essay, I decompose the retail order imbalance into aggregate selling orders and aggregate buying orders, and document an asymmetric pricing effect between the selling orders and buying orders. Specifically, the long-short hedge portfolio formed based on retail selling orders generates about 10 bps abnormal return each day, i.e., 2% each month. However, the aggregate retail buying orders cannot predict the cross-sectional stock returns. The previous documented positive relationship between cross-sectional stock return and retail order imbalance could be mainly driven by the selling side. Stocks with intensive aggregate retail selling orders continue to underperform in the future, receive excess retail selling pressure, and are associated with drying-up liquidity. The pricing effect of retail selling orders becomes stronger when the VIX is high or when market is bearish, and when the stock is hard to value, but disappears on Fridays when the investor mood is high.en_US
dcterms.abstractTo summarize, the two essays provide new evidence on the role and impact of the retail investors in the financial market. The results help both the market participants and the policy makers to better understand the impact of retail investors on the asset pricing.en_US
dcterms.extentviii, 126 pages : illustrationsen_US
dcterms.isPartOfPolyU Electronic Thesesen_US
dcterms.issued2022en_US
dcterms.educationalLevelPh.D.en_US
dcterms.educationalLevelAll Doctorateen_US
dcterms.LCSHAssets (Accounting)en_US
dcterms.LCSHRetail tradeen_US
dcterms.LCSHStocks -- Pricesen_US
dcterms.LCSHIndividual investorsen_US
dcterms.LCSHHong Kong Polytechnic University -- Dissertationsen_US
dcterms.accessRightsopen accessen_US

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Please use this identifier to cite or link to this item: https://theses.lib.polyu.edu.hk/handle/200/11942