Impact of perceived unlucky years on investment performance: Evidence from Chinese cultural beliefs

Abstract

This paper establishes a negative association between irrational unlucky beliefs and investment performance, using evidence from an Asian-culture rooted superstition that the “zodiac birth year” brings people bad luck. With longitudinal brokerage data of 22,646 Chinese retail investors, we document a significant “zodiac birth year” effect: the birth year investors under-perform non-birth-year peers by around 1.16 % per annum. This effect is robust across different performance metrics and model specifications, and appear more pronounced among male investors. Results from a small controlled experiment confirm that birth year individuals appear more pessimistic about their personal luck, which, in turn, negatively influences their expectation on stock market returns and risk-taking behaviors. Furthermore, we find evidence supporting that the unlucky beliefs make birth year investors more susceptible to investment bias, including inactive trading, risk aversion in stock selection and the incidence of the disposition effect. Overall, our results reveal the large economic costs imposed by irrational beliefs on investor outcomes, even in good economic times.