Fractional Trading
70 Pages Posted: 10 Nov 2021 Last revised: 16 Jan 2024
Date Written: November 18, 2021
Abstract
Fractional trading (FT)—the ability to trade less than a whole share—removes barriers to high-priced stocks and facilitates entry by capital-constrained retail investors. We observe a surge of tiny trades, measured using off-exchange one-share trades, among high-priced stocks compared to low-priced stocks after FT is introduced to the U.S. equity markets. These tiny trades, when coordinated during attention-grabbing events, are forceful enough to exert large price pressure on high-priced stocks. Further evidence suggests that FT can even fuel meme stock-like trading frenzies and bubbles in high-priced stocks, for which feedback effect likely plays a role.
Keywords: Fractional Trading, Bubble, Coordination, Feedback, COVID-19
JEL Classification: G10, G12, G14, G18, G32, G41
Suggested Citation: Suggested Citation