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What is high trading volume in a stock indicative of?

Why is trading volume in China stock exchanges mainly generated by retail investors and not institutional investors?

  • In the US, the trades are dominated by institutional investors. In China, it is the retail investors who dominate. Why is trading volume in China stock exchanges mainly generated by retail investors and not institutional investors? The Chinese banks are very large by world standards. The institutions in China are not small.

  • Answer:

    The big institutional investors in China are the state holding companies and they do not actively trade their shares.  Typically, a state holding companies will own a vast majority stake in the SOE and they just hold those shares.  Even a rumor that the state holding companies are about to buy/sell shares will drive the market crazy. Chinese banks are not allowed to hold shares in non-bank companies.  This is something that China copied from the US, and it was intended to avoid a Japanese style system with associated problems. There is not much of a mutual fund market in China, and there are few non-state institutional investors.  In addition, there are severe trust issues, Chinese investors generally do no trust internediaries so this also causes the retail market to be huge.

Joseph Wang at Quora Visit the source

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I would like to say the bad habits of Chinese retail investors also contribute to the unbalanced trading volume. Lots retail investors lack basic knowledges on investment and finance, they generallly heavily obsess with the 'technical analysis'. What does the firm of the stock do? It doesn't matter. Will the profit of the firm increase or decrease? It doesn't matter. Lots of investors even don't know the name of the stock they invest, a code is enough. So their investment circle are always short, 2 days- 2 weeks, then they begin to hunt the next stock.

Amitofo Li

It's also because of the lack of nongovernment pension system. In China, there are many, if at all, pension fund managers like in the U.S. to balance the trading activities.

Jason Li

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