The Scientific Study of the Extremely Obvious: Evidence Shows Retail Investors Paid More Attention to Stocks During Lockdown!

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For the last year, market commentators and investment professionals have blamed volatile markets on bored retail investors trading on Robinhood while stuck at home during the pandemic.

Turns out they were right, according to a new study from a top Australian university.

Researchers from the University of Western Australia used Google mobility data and internet traffic to analyze how much individual investors in the U.S. paid attention to stock markets and publicly traded companies while under lockdown. The academics found that the extended periods at home led to higher market engagement by retail investors, especially among younger populations and in states where fewer people worked from home prior to the pandemic.

“The stay-at-home duration increases retail attention and contributes to heightened trading activity in the financial market,” authors Daniel Cahill, Chloe Ho, and Joey Yang wrote in their paper.

To measure how much attention individual investors paid to public companies, the trio looked at pageviews for those companies’ Wikipedia profiles. They found that the daily average views for company Wikipedia pages increased from March to April, as people spent more time at home due to Covid-19.

The authors also pointed to the rapid adoption of trading app Robinhood, which attracted 3 million new users during the first four months of the year, according to a Bloomberg report cited by the study.  

[II Deep Dive: The Triumph of Dumb Money]

Based on their data, Cahill, Ho, and Yang built a model to determine whether increased retail investor attention contributed to the spike in trading volume and volatility observed during the pandemic. They found that lockdowns had a “significant” impact on volatility, suggesting that stay-at-home orders “stimulate[d] abnormal trading activity and volatility in financial markets.”  

Notably, the authors found that retail investors paid relatively less attention to speculative, “lottery-like” stocks, focusing instead on companies with larger institutional ownership. This suggests that investors “may prefer more credible stocks during the pandemic-driven crisis,” the authors said.

“Our study has important implications to regulators monitoring the trading behavior of market participants, and provides evidence on the impact of permanent work-from-home schemes some companies proposed,” the authors concluded, adding that such a more permanent shift to remote work “could potentially exacerbate stock market volatility.”

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