When Price Discovery and Market Quality Are Most Needed: The Role of Retail Investors During Pandemic

摘要

Using the Boehmer, Jones, Zhang, and Zhang (2021) algorithm, we identify a broad swath of marketable retail investor orders in the U.S. market during the pandemic. The marketable retail trading volumes rapidly rise from $325 billion in 2019 to $852 billion at mid-2020, and stay high for the next two years. The retail order flows positively predict cross-sectional returns over various horizons, and are associated with wider future effective spreads and higher future volatilities, as well as less market participations by high frequency traders and short-sellers. We find supportive evidence for informed and uninformed retail hypotheses. (Presented at 2022 Plato Market Innovator (MI3) Conference, 2022 Transparency and Market Structure Conference, Tsinghua Finance Seminar Series.)