Abstract
We posit and demonstrate that, in China’s retail-dominated market, quantitative trading over-relies on non-fundamental signals, thereby crowding out fundamental information from stock prices and increasing crash risk. Using trading data from quantitative mutual funds and Chinese A-share firms during 2009–2023, we find that greater exposure to quantitative trading is associated with higher future crash risk. Mediation analysis further reveals that reduced information efficiency constitutes a key channel through which quantitative trading elevates crash risk. The effect is stronger for stocks with more retail investors, consistent with our proposed mechanism. Overall, we identify a novel potential risk of quantitative trading in underdeveloped emerging markets.
| Original language | English |
|---|---|
| Number of pages | 5 |
| Journal | Applied Economics Letters |
| DOIs | |
| Publication status | E-pub ahead of print - 14 Mar 2026 |
| Externally published | Yes |
Bibliographical note
Publisher Copyright:© 2026 Informa UK Limited, trading as Taylor & Francis Group.
Funding
This work was supported by the Key Program of the National Natural Science Foundation of China [No. 72432005; No. 72531006]; the Guangdong Provincial Program for Philosophy and Social Sciences [No. GD25YYJ13], and the Young Teachers Research Start-up Fund of Shenzhen University [No. RC20240283].
Keywords
- China’s capital market
- mutual funds
- Quantitative trading
- stock price crash risk
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