Going Mobile, Investor Behavior, and Financial Fragility
56 Pages Posted: 24 Jul 2019
Date Written: April 2018
This study investigates how mobile trading technology affects retail investor behavior and mutual fund fragility using proprietary individual-level fund trading data. I exploit a natural experiment, the release of a popular mobile trading application by a leading investment adviser in China. My difference-in-difference analysis shows "going mobile" raises investor attention and trading volume through aggravating investors' over-confidence and self-control problem. The mobile app significantly boosts flow volatility, and makes investor flow more sensitive to short-term fund return and market sentiment. As a result, "going mobile" depresses fund performance by heightening indirect liquidity costs. The funds more exposed to the shock see a greater decline in abnormal return, explained by large fund flows through the trading app.
Lastly, I combine Instrumental Variable method and a spatial discontinuity setting to strengthen causal inference. Overall, the paper shows "going mobile" intensifies financial fragility and dampens mutual fund performance by amplifying investors' cognitive biases.
Keywords: Financial fragility,mobile technology, trading, volatility, fund flows
JEL Classification: G02, G14
Suggested Citation: Suggested Citation