Trading restrictions and investor reaction to non-gains, non-losses, and the fear of missing out: Experimental evidence

Abstract

This study investigates, in an experimental setting, how retail investors react to trading restrictions. Investors in our experiment trying to buy stock learn that their brokerage has suspended buy orders. We manipulate whether the stock price increases or decreases following this restriction. When the stock price increases, investors miss out on a potential gain (non-gain). When the stock price decreases, investors avoid a potential loss (non-loss). Even though both non-gains and non-losses are notional, investors who experience non-gains react more negatively to trading restrictions. We measure investors’ susceptibility to fear of missing out (FoMO)—and find that high-FoMO investors react more negatively to trading restrictions than low-FoMO investors but are relatively less-affected by non-gains versus non-losses. In contrast to the universal outrage against trading restrictions described in the popular press, investor reactions in our experiment are driven by a combination of context-specific factors (non-gains versus non-losses) and investor-specific factors (FoMO).