Yichu Huang from the East China University of Political Science and Law (et al.) recognized a natural experiment presented itself in the form of the Wuhan lockdown in 2020.
They wondered, what would be the effect on retail investor activity during a period when smaller investors were prevented from meeting Face to Face (F2F)?
The researchers note student learning, health care consultation, international relations and workplace productivity all suffer when F2F interaction is cut out; but what of investor activity?
Three trends emerged from their data:
- Absent F2F interactions trading frequency declined
- Total investment staked fell, i.e. chips came off the table
- Risk appetite declined and exposure to less risky funds increased
The paper dives into some of the established literature for causation. Viz., investors like to hang out in the same stocks as peers (herd), they overestimate the value of information in the public domain (overconfidence) and they make too many decisions on trivial information (over-trade). Absent F2F interactions a lot of this behavior is cut out.
Here’s the golden nugget though. RETURNS OVER THE PERIOD FOR THE INVESTORS ROSE.
Professionals are permitted a big ‘Ah hah!’ here. Proof, if any were needed, that chatting to mates, trading on other’s advice and over-trading are surefire ways to negatively impact returns.
Wuhan punters failed to learn the lesson though. The research notes after the lockdown was over they soon reverted to their old F2F driven habits. Their brokers must have been relieved
Besides, isn’t investing so much more fun that way!
The paper in full is here Trading Without Meeting Friends.
Happy Sunday.