Tech-Enabled Financial Data Access, Retail Investors, and Gambling-like Behavior in the Stock Market : Evidence from a Natural Experiment

Research output: Conference Papers (RGC: 31A, 31B, 32, 33)32_Refereed conference paper (no ISBN/ISSN)peer-review

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Original languageEnglish
Publication statusPublished - 22 Jul 2021

Conference

TitleThe NBER Summer Institute - SI 2021 IT and Digitization
LocationZoom
Period22 July 2021 - 23 July 2022

Abstract

A significant portion of retail investors heavily engage in feedback trading, which is built on historical price data. As financial technologies lower individuals’ acquisition cost to these data, the abundance of (raw) information creates an illusion of knowledge for retail investors and boosts their overconfidence, which further induces them to trade too much. Against this backdrop, we investigate the impact of technology-enabled convenient access to financial data on retail investments. Our identification strategy exploits the sudden shutdown of Yahoo! Finance Application Programming Interface (API), which cut off the largest free price data access for retail investors engaging in feedback trading. We find that within one month after the API shutdown, retail trading volumes in stocks favored by those investors dropped by 8.6%-10.5%. The remaining retail trades became more predictive of future returns, suggesting less gambling-like behavior after the API shutdown. The study reveals a dark side of technology-led wider data provision to retail investors, and echoes regulators’ call to improve the financial literacy of retail investors.

Citation Format(s)

Tech-Enabled Financial Data Access, Retail Investors, and Gambling-like Behavior in the Stock Market : Evidence from a Natural Experiment. / Havakhor, Taha; Rahman, Mohammad S.; Zhang, Tianjian et al.

2021. Paper presented at The NBER Summer Institute - SI 2021 IT and Digitization.

Research output: Conference Papers (RGC: 31A, 31B, 32, 33)32_Refereed conference paper (no ISBN/ISSN)peer-review