Stocktake: Robinhood traders are the market patsies

A strong link has been found between retail investor interest and ‘opportunistic’ insider trading

Insiders are much more likely to sell shares when retail interest is high. Photograph: Michael Nagle/Bloomberg

Insiders are much more likely to sell shares when retail interest is high. Photograph: Michael Nagle/Bloomberg

 

2021 has been the year of the retail investor. Long derided as dumb money, commentators increasingly argue that retail investors now need to be taken more seriously.

That’s bunk, says Liberum Capital strategist Joachim Klement. On his blog, Klement refers to a recent study contrasting the behaviour of retail investors with the people who know most about a company – corporate insiders.

Using Google Trends to identify times when retail investors paid more attention to a particular stock, the study found a “strong link” between retail investor interest and “opportunistic” insider trading.

Insiders are much more likely to sell shares when retail interest is high. They are also likely to sell more shares than usual at such times.

Insiders profit in two ways. Firstly, such trades, the study found, generate “substantially higher returns”. Secondly, they are much less likely to be investigated by regulators, as they are not acting on private company information.

Unsurprisingly, these kind of insider trades are more common in lottery stocks and in firms that have “weaker corporate governance, lower corporate social responsibility, and poorer reputations”.

Klement’s take is blunt but accurate. “Retail investors really are the patsies in the market,” he says, “and the Robinhood crowd doesn’t even realise it.”

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
GO BACK
Error Image
The account details entered are not currently associated with an Irish Times subscription. Please subscribe to sign in to comment.
Comment Sign In

Forgot password?
The Irish Times Logo
Thank you
You should receive instructions for resetting your password. When you have reset your password, you can Sign In.
The Irish Times Logo
Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.
Screen Name Selection

Hello

Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
Forgot Password
Please enter your email address so we can send you a link to reset your password.

Sign In

Your Comments
We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Standards. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or by filling out this form. New comments are only accepted for 3 days from the date of publication.