When Retail Investors Strike: Return Dispersion, Momentum Crashes, and Reversals
Prof. Jiatao LIU
Assistant Professor of Finance
International Business School Suzhou
Xi’an Jiaotong-Liverpool University
Date: 27 November 2025 (Thursday)
Time: 15:30 to 17:00
Venue: E22 – G004
Moderator: Prof. Shen ZHAO, Associate Professor of Finance
Abstract
We introduce the inter-decile return spread (IDR), a real-time cross-sectional dispersion measure that captures procyclical, retail-driven speculative episodes. In China’s retail-dominated A-share market, spikes in IDR coincide with surges in new account openings, retail buy-order imbalances, price-limit hits, and attention proxies. Momentum profits are concentrated in low-IDR states, while high-IDR states feature negligible momentum and strong short-term reversals. Conditioning on IDR restores the “missing” momentum premium in China and a simple rotation between momentum and reversal delivers much higher Sharpe ratios than static strategies. Changes in IDR forecast market run-ups followed by reversals, consistent with salience, diagnostic expectations, and extrapolative beliefs. Internationally, using Google search volume as an attention proxy, IDR predicts weaker momentum and stronger short-term reversals in most of 50 global markets, especially in emerging markets. IDR thus provides a behavioral state variable for timing momentum and reversal strategies.
Speaker
Prof. Jiatao LIU is an Assistant Professor in the Department of Finance, International Business School Suzhou, having joined Xi’an Jiaotong-Liverpool University in 2022. He holds a Ph.D. in Finance from Bayes Business School (formerly Cass), City, University of London. Jiatao’s primary research fields are empirical asset pricing, international finance, and digital finance. His work has been published in the Journal of International Money and Finance and Journal of Management Science and Engineering. Before his academic career, Jiatao worked at Morgan Stanley as a fixed-income analyst.
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