Retail Trading and Analyst Coverage

42 Pages Posted: 29 Apr 2019 Last revised: 7 May 2021

See all articles by Charles Martineau

Charles Martineau

University of Toronto - Rotman School of Management and UTSC Management

Marius Zoican

University of Toronto at Mississauga - Department of Management; University of Toronto - Rotman School of Management

Date Written: May 4, 2021

Abstract

How does retail trading impact information supply in financial markets? We build a model where sell-side analysts compete for scarce institutional investor attention to maximize volume for brokerages. Analysts cluster in retail-heavy stocks, where investors can trade more aggressively without revealing information and incurring price impact. Empirically, retail trading and coverage are strongly correlated after controlling for factors associated with analyst following. Finally, a market-wide increase in retail demand allows analysts to diversify coverage without sacrificing institutional volume. Throughout 2020, as brokerage fee cuts and COVID-19 triggered a retail trading surge, coverage becomes significantly less driven by retail volumes.

Keywords: retail trading, analyst coverage, price impact, investor attention, learning

JEL Classification: G11, G24, G40, D83, M41

Suggested Citation

Martineau, Charles and Zoican, Marius, Retail Trading and Analyst Coverage (May 4, 2021). Proceedings of Paris December 2019 Finance Meeting EUROFIDAI - ESSEC, Available at SSRN: https://ssrn.com/abstract=3376162 or http://dx.doi.org/10.2139/ssrn.3376162

Charles Martineau

University of Toronto - Rotman School of Management and UTSC Management ( email )

105 St-George
Toronto, Ontario M5S3E6
Canada

HOME PAGE: http://charlesmartineau.com

Marius Zoican (Contact Author)

University of Toronto at Mississauga - Department of Management ( email )


Canada

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.mariuszoican.org

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