Mobile Trading Apps Lead to More Frequent Transactions

Active investors taking advantage of the rise of technology portability through the use of smartphones have changed their trading behavior, according to a recent study.

Along with the rise of technology portability through the use of smartphones over the past decade, financial applications such as trading securities have become more prevalent. Active investors taking advantage of these advances have changed their behavior, according to a recent study. Convenience and the illusion of knowledge control increased investor attention and trading frequency.

The study consisted of 13,354 app adopters (investors who switched from using a trading website to a mobile trading app) and 11,482 nonadopters (investors who continued trading via a website even after mobile trading became available). Sixty-one percent of the study’s subjects were male, and the average age was 36.

Using a number of statistical analyses, the author found that after adopting the mobile trading app, investor attention (measured by app logins) rose by 146% and trading volume, subsequently, rose by 86%, indicating higher trading intensity. The researcher also concluded that some app adopters are prone to mistake their alpha (excess returns to the market) as investment skill and disproportionately continue to increase their trading volume.

Separately, the study examined flow (cash inflows or cash outflows) for a mutual fund used by the app adopters. Using a regression analysis, the researcher found that higher flow due to app adopter trading largely contributed to a decline of 4% annually in the performance of the mutual fund.

In addition, the researcher examined whether mutual funds with a greater exposure to app adopters would have a lower return relative to the other funds. Comparing retail-oriented and institutional-oriented funds, the data showed that the former’s return would “deteriorate” faster with higher exposure than the latter.

The study concluded that a change in trading method (website to mobile) impacts investor behavior biases by increasing attention, increasing trading volume and frequency and subsequently negatively impacting mutual fund performance.

Source: “Going Mobile, Investor Behavior, and Financial Fragility,” Xiao Cen; SSRN, January 2018.