Going Mobile, Investor Behavior, and Financial Fragility

Abstract

This study investigates how trading technology affects retail investor behavior and mutual fund fragility using proprietary individual-level fund trading data. I exploit a natural experiment, the release of a popular trading application by a leading investment adviser in China. My difference-in-difference analysis shows going mobile raises investor attention and trading volume through aggravating investors' over-confidence and self-control problem. The app significantly boosts flow volatility, and makes investor flow more sensitive to short-term fund return and market sentiment. As a result, going mobile depresses fund performance by heightening indirect liquidity costs. The funds more exposed to the shock see a greater decline in abnormal return, explained by large fund flows through the trading app. Lastly, I combine Instrumental Variable method and a spatial discontinuity setting to strengthen causal inference. Overall, the paper shows going mobile intensifies financial fragility and dampens mutual fund performance by amplifying investors' cognitive biases.