Retail Investors Research Articles

Retail investors matter: The value of corporate interactions

While the importance of corporate interactions with large or institutional investors has attracted much research attention, the value of such interactions with retail investors remains largely unexplored. In this study, we investigate the impact of corporate interactions with retail investors on the cost of equity capital, using a comprehensive dataset of dialogues extracted from online corporate interactive communication platforms launched by two major Chinese stock exchanges in the 2010 s. We find that firms that actively engage with retail investors have significantly lower costs of equity capital, and this effect is particularly pronounced when these investors hold a larger proportion of ownership. Our findings suggest that the interactions between firms and retail investors lead to a reduction in the cost of equity capital, primarily by mitigating the difficulties these investors face in processing information and enhancing their confidence in the firm.

Herding and retail investors’ decisions: A review literature

The main purpose of this paper is to review the existing literature of herding behavior and its relationship with retail investors’ decisions as well as its impact too to understand trend in the literature and some aspects relate to herd behavior. Herding occurs when individuals surrender their decision to a group and neglect their own beliefs to replicate others’ thoughts, feelings and actions. The study employed Prisma framework to review literature. It relied on intensive databases and sources such as Google scholar, Emerald, Elsevier, Springer, Research gate and Scopus. Literature studies have revealed tremendous empirical investigations about the impact of herding on retail investors’ decisions in the developed and developing countries. However, those studies have been filled the gap in the literature which relate to the relationship between herding and retail investors’ decision. This study aims to fill this gap by reviewing the literature on the relationship between herding and retail investors’ decision to figure out the trend of herd behavior. Therefore, the highlighting and reviewing of herding and its impact on retail investors decision might enrich the literature and assist researchers to determine gap in the field as well as determine new area need to be investigated.

Analysing Risk & Return Profiles: A Comparative Study of the Indonesian Stock Market against International Benchmarks

The Indonesian stock market, also known as IDX, has emerged as a prominent player in the financial landscape of Southeast Asia. It has attracted the interest of investors who regard it as a potential source of massive returns. Nevertheless, empirical research has consistently demonstrated that developing nations’ stock markets tend to exhibit a notable degree of volatility. This volatility is well recognised for its propensity to amplify risk levels for domestic investors, potentially leading to a decrease in the demand for stock market investments. The observed phenomenon in Indonesia reveals a very low degree of stock market engagement when compared to benchmark nations. This suggests that the high volatility in the market may be a contributing factor. Understanding the risk-return characteristics of the IDX in comparison to recognised benchmark indexes is crucial for making educated investment decisions. This study will conduct a comparative analysis of the risk-return attributes of the IDX in comparison to six well recognised benchmark indexes, specifically the S&P 500 Index, the Straits Times Index, the FTSE 100 Index, the Shanghai Stock Exchange Composite, the BSE Sensex, and the BOVESPA Index. The study employs several risk and return measures, such as standard deviation, coefficient of variation, and the Sharpe ratio, to assess the relative performance of the IDX. The objective of this study is to evaluate the comparative appeal of the Indonesian stock market when compared to international benchmarks, with a specific focus on risk and return. The aim is to determine the optimal level of stock market involvement and the inclination towards risk aversion or risk-seeking behaviour among retail investors in Indonesia.

Investor's Perception with Respect to Corporate Governance: A Study of Selected IT firms

This research delves into the complexities of corporate governance within the Indian IT sector, focusing on the perspectives and awareness levels of retail investors. It explores the evolution of corporate governance practices, influenced by global trends and local market dynamics, in leading IT companies such as Infosys, Wipro, and TCS. The study employs a comprehensive survey to assess the demographic profile, investment patterns, and corporate governance awareness among IT professionals in the Delhi NCR region. The findings reveal a youthful demographic with a cautious investment approach and varying degrees of engagement with corporate governance issues. Notably, a strong relationship is observed between professional roles and the understanding of corporate governance norms, particularly Clause 49 of the Listing Agreement. The study underscores the importance of corporate governance awareness in shaping investment decisions and highlights the need for transparent and accountable governance practices to align with investor expectations. It contributes valuable insights to the discourse on corporate governance in Indian IT firms, providing a foundation for enhancing investor-friendly governance frameworks.

Market memory, advance reaction, and retail investor herding

The arrival of new information, in conjunction with investor cognitive biases, has commonly been acknowledged as the main cause of herding behavior. However, whether past market information embedded in market memory influences investor herding has been less explored. We utilize tick-level trading data from the Chinese stock market to examine the impact of the market memory formed of stocks' exceptional performance during their initial trading days on the future herding behavior of retail investors. The empirical results show that the market memory of newly listed stocks is positively correlated with retail investor herding one year later at the appearance of a market-wide upward trend. We also propose an advance reaction channel in which retail investors tend to pay early attention to and preemptively invest in stocks with deep market memory due to their limited attention and the availability heuristic, leading to further herding due to confirmation bias. Our findings show that market information, if not fully incorporated into current stock prices through investor trading, can be partly stored in market memory. When activated by specific market conditions, market memory can be recalled and affect investor behavior and subsequent price dynamics. Our findings provide additional evidence to challenge the efficient market hypothesis (EMH) from the perspective of behavioral finance.

Evaluating Islamic Stock Portfolio Weighting Method: Application Of Global Minimum Variance In Indonesia Islamic Stock Market

Investing in stocks can be a smart alternative to saving money in a bank or keeping cash on hand due to the negative impact of inflation. It offers various advantages, such as generating income and safeguarding wealth against inflation. Investing in stocks comes with risks, which can be mitigated through strategic portfolio construction. Multiple methods exist for portfolio weighting, one of the popular portfolio weighting methods is Global Minimum Variance (GMV) by Markowitz (1952). This research aims to provide evidence about the performance of the GMV Method for Islamic retail investors using the Jakarta Islamic Index as the investment universe. The study analyzes the out-of-sample performance of GMV compared to Benchmark Indexes, which are IHSG, LQ45, ISSI, and JII. The finding of this study provides that constructing an Islamic stock portfolio using GMV help historically able to help the investor to gain a better return compared to ISSI, LQ45, and JII in the overall observation period and earned better returns compared to all benchmark indexes after the Covid-19 Period. Global Minimum Variance also helps the investor to gain better risk-adjusted return compared to ISSI and JII in the overall observation period and after the Covid-19 Period. Therefore, the retail investor could use GMV to construct their Islamic Portfolio to gain better returns than the market.

The European green deal, retail investors and sustainable investments: A perspective article covering economic, behavioral, and regulatory insights

The purpose of the European Green Deal and the regulation associated with the so-called EU Taxonomy for Sustainable Activities is to lead capital flows towards sustainable investments. According to the European Commission this is necessary to finance solutions for the immense challenges ahead, such as climate change, social inequality, and loss of biodiversity. However, academic research raises concerns that sustainable investments may earn lower risk-adjusted returns in the long run. The European Supervisory Authorities identify greenwashing risks and pronounce the limited ability of retail investors to make informed investment decisions. The aim of this perspective article is to provide suggestions for a regulation on relevant information on sustainable investments provided by financial service providers to retail investors. Therefore, the existing regulations are put in relation with recent research on investments considering ESG issues. To enable retail investors' self-determined decision-making, financial service providers such as banks, mutual funds, and financial advisors must provide easily accessible, clear, and easily understandable information regarding the ESG-conformity of the offered financial products. In addition, financial service providers must inform retail investors about some specific risks that can arise from a narrow focus on ESG assets such as under-diversification, an overweight of large stocks, and returns that can be lower than the market return.

IPOs as Catalysts for Retail Investor Wealth Creation: Evidence from the Indian Stock Market

The study delves into the dynamics of wealth creation for retail investors in the context of Initial Public Offerings (IPOs) within the Indian equity markets. Against the backdrop of a burgeoning retail investor base, the research offers a comprehensive analysis spanning April 2012 to December 2022, evaluating short-term and long-term IPO performance metrics. The study reveals nuanced insights into wealth creation dynamics by scrutinizing listing day returns, first-week to third-year returns, and market-adjusted returns vis-à-vis the Nifty50 Index. Notably, the research suggests that while IPOs exhibit promise with positive listing day returns, sustaining growth over extended horizons poses challenges. The hypothesis of inflation serving as a pragmatic hurdle rate for retail investors is explored, offering a novel perspective on wealth preservation. It also sheds light on the significant variability in the Real Rate of Returns (RRRs) among IPOs, with some contributing to wealth generation while others result in wealth erosion. This underscores the importance of retail investors carefully assessing and managing risks, emphasizing the need for prudent portfolio diversification and effective risk mitigation strategies, particularly over longer investment horizons.

Investigating effect of social media advice and corporate information on retail investors' decisions in stock market

Investigating effect of social media advice and corporate information on retail investors' decisions in stock market

Retail Investors’ Activity on Pleasant and Unpleasant Firms

Retail Investors’ Activity on Pleasant and Unpleasant Firms

Investigating effect of social media advice and corporate information on retail investors' decisions in stock market

Investigating effect of social media advice and corporate information on retail investors' decisions in stock market

Internet searching and stock price informativeness: Evidence from Google withdrawal in China.

We analyze whether and how internet searching impacts stock price informativeness. Using the 2010 Google withdrawal in China as a quasi-natural experiment, we establish a causal effect between internet searching and stock price informativeness using a difference-in-difference framework. We find that firms with higher Google search volume experience a 10% decrease in stock price informativeness after the Google withdrawal. The negative effect of the Google withdrawal on stock price informativeness is pronounced in firms with more retail investors, larger state-ownership, and poor analysts' earnings forecasts. Our results suggest that retail investors can benefit from internet searching to collect and process firm-specific information more efficiently.

Greenwashing and Retail investors: The case for a Taxonomy for ESG Investments?

Greenwashing and Retail investors: The case for a Taxonomy for ESG Investments?

Retail Investors and Corporate Governance: Evidence from Zero-Commission Trading

Retail Investors and Corporate Governance: Evidence from Zero-Commission Trading

Mutual Fund Investment Strategies for Retail Investors: An Empirical Study in the Light of Market Movements

Mutual fund investment strategies provide retail investors with diversified and professionally managed portfolios, making them an attractive option for wealth accumulation. One popular approach is index investing, where funds track a market index, aiming to replicate its returns. This strategy offers low costs and broad exposure. On the other hand, active management involves fund managers making investment decisions to outperform the market. While potentially yielding higher returns, it comes with higher fees. Asset allocation is another key strategy, where investors diversify their holdings across various asset classes like stocks, bonds, and commodities. This helps manage risk and optimize returns based on individual risk tolerance and financial goals. For those seeking stability, income funds focus on generating regular dividends, suited for conservative investors. In contrast, growth funds target capital appreciation by investing in companies with high growth potential. Careful consideration of these strategies, aligned with one's financial objectives and risk appetite, is essential for retail investors to make informed mutual fund choices.

ЦИФРОВАЯ ТРАНСФОРМАЦИЯ ФИНАНСОВЫХ РЫНКОВ И ИНВЕСТИЦИОННЫХ СТРАТЕГИЙ

This article discusses the process of digital transformation of financial markets and gives its definition. Three main components of this process have also been identified. The benefits and risks of digital transformation are identified. Artificial intelligence is seen as one of the main innovative tools used by retail investors and financial institutions.

Do Firms Respond to Calls for Environmental Improvements made by Retail Investors?

Do Firms Respond to Calls for Environmental Improvements made by Retail Investors?

Retail Investors and Analysts

Retail Investors and Analysts

Developing a Security Risk Assessment based Smart Beta Portfolio Model for Robo Advising

construction model for Robo Advising investors belonging to different risk categories. This model will cater to the Gen Z tech-savvy retail investors who have become more active and are interested in online investment platforms like Robo Advising. Our study differs from prior studies as it proposes a portfolio construction model for equity investors belonging to different risk categories while traditional approaches map debt portfolios to low risk investors and equity portfolios to high risk investors. Investors are generally risk-averse but prior studies have developed SB portfolios without considering their risk appetite. In this study, we assess the riskiness of stocks and then categorise them into different risk categories by mapping SB factors such as quality, value, alpha, momentum, etc. We further construct SB portfolios that minimise risk for each category of stocks to cater to investors belonging to low, moderate, high, as well as very high risk categories, using Machine Learning (ML) algorithms. Through a wide range of risk and return performance indicators, we provide evidence that our model offers higher returns at lower risk than human-managed portfolios. Our model proves to be more reliable and encourages Robo Advisors to offer SB portfolios catering to retail investors’ needs and their risk appetite. The study contributes to the evolving literature on Robo Advising, SB investing and to the debate on whether algorithms can replace human portfolio managers.

Investor Relations for the Rest of Us: Engaging with Retail Investors

Investor Relations for the Rest of Us: Engaging with Retail Investors