Essays on Retail Investor Behaviors and Technology Platforms
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Zhu, Ruiqi
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Abstract
Rapid strides in information technology and fintech have significantly transformed the retail investment landscape. This dissertation examines the impact of technology platforms on retail investor behaviors.
In my first essay, I examine the impact of product recommendations on retail investors’ mutual fund investments. Product recommendations have been widely adopted on online investment platforms to help investors make investment decisions more easily. The findings indicate that investors tend to follow the recommendations when they make mutual fund purchases. However, only investors of low socioeconomic status (SES) suffer significantly worse investment returns after purchasing recommended funds. To explain this disparity, I find investors with low socioeconomic status tend to gather less information and expend reduced effort in fund research when buying recommended funds. Furthermore, those investors tend to hold recommended funds for a significantly shorter time and their purchase of recommended funds experiences a significantly larger price reversal than non-recommended funds. In summary, product recommendations disproportionately lead lower socioeconomic status investors to make irrational investment decisions, exacerbating financial harm for those who are most vulnerable in the market.
The second essay examines the impact of stimulus checks on retail investors’ interaction with robo-advisors. As robo-advisors become an increasingly essential tool for investors when making financial decisions, it is critical to examine how economic factors such as stimulus checks impact investors’ interaction with robo-advisors. After receiving stimulus checks, investors significantly increase their lumpsum investments to robo-advisors. This increase is most significant for investors with lower income, younger age, higher risk tolerance, and previously rely on robo-advisors more. This increase in lumpsum investments mostly go to short-term investment accounts rather than long-term retirement accounts. Investors also increase their number of roundups investments and decrease their number of withdrawals from robo-advisors.
The third essay analyzes merger and acquisition rumors on social media platforms for retail investors using data from Seeking Alpha. Social media has become an essential source of information for retail investors when making investment decisions. My findings reveal that rumors about firms with higher attention and more bullish authors on Seeking Alpha are more likely to be accurate, while those with negative sentiment are less credible. Firms involved in true rumors exhibit higher abnormal returns, reflecting the market’s partial ability to assess acquisition probabilities. Retail investors are particularly influenced by Seeking Alpha authors’ disclosures, favoring stocks with more long position disclosures.
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Date
2024-12-06
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Dissertation