Why are the markets going crazy? Smartphones, according to a study

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Low interest rates? Bored traders stuck at home? A new study has offered an alternative explanation for the increase in speculative activity.

Smartphones.

A study released by the National Bureau of Economic Research found that smartphone use increases the purchase of riskier, lottery-like assets, and drives past returns.

It was written before the recent spike in trading from companies such as GameStop GME,
+ 0.10%
and AMC Entertainment AMC,
+ 3.25%,
in which retail investors attacked the short positions of many hedge funds. Online brokerage firm Robinhood is now the number one app on the Apple App Store, and the source of speculative demand, Reddit, is number two.

The researchers looked at two large German retail banks that introduced trading apps for mobile devices between 2010 and 2017. For more than 15,000 clients, they observed not only the transactions, but also the specific platform used for each. transaction.

The researchers were able to examine the same investor in the same month. Smartphones increase the probability of buying so-called lottery stocks by 67%. Device usage increases the likelihood of purchasing assets in the top 10% of past performance by 12 percentage points.

Worryingly, once they start using smartphones, they also increase their risk of hunting on non-smartphone platforms.

Another finding is that the risky behavior persists for up to 10 quarters after the first use of the smartphone app. What is also surprising is that the researchers weren’t interested in particularly young and inexperienced traders – these German investors had, on average, 45 years and nine years of investment experience.

But an interesting finding is that nudges – the main feature of stocks that have seen big moves – don’t seem to boost activity. Results were strong across all asset classes and not just those presented in the smartphone app.

The working paper was written by Ankit Kalda and Alessandro Previtero from Indiana University, Benjamin Loos from TUM School of Management in Munich and Andreas Hackethal from Goethe University in Frankfurt.

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