Ever since the GameStop short squeeze, I hear how retail traders have become the new force to reckon with in stock markets. The argument goes something like this: Electronic trading has become cheaper and more widespread for retail investors. On top of that, there are social media platforms that allow retail traders to “coordinate” and hype individual stocks which then experience massive share price gains. As a result, professional investors need to predict retail investors’ next move in order to figure out which stocks to buy or sell. If the article is a bit more sophisticated (and let’s be honest, hardly any articles on this topic are), then the “evidence” given in support of the power of retail traders is that stocks that are bought by retail traders experience high abnormal returns in the one to five trading days after they have been bought by retail traders.
No, retail traders aren’t the smart money
No, retail traders aren’t the smart money
No, retail traders aren’t the smart money
Ever since the GameStop short squeeze, I hear how retail traders have become the new force to reckon with in stock markets. The argument goes something like this: Electronic trading has become cheaper and more widespread for retail investors. On top of that, there are social media platforms that allow retail traders to “coordinate” and hype individual stocks which then experience massive share price gains. As a result, professional investors need to predict retail investors’ next move in order to figure out which stocks to buy or sell. If the article is a bit more sophisticated (and let’s be honest, hardly any articles on this topic are), then the “evidence” given in support of the power of retail traders is that stocks that are bought by retail traders experience high abnormal returns in the one to five trading days after they have been bought by retail traders.