Smartphone Trading Technology, Investor Behavior, and Financial Fragility

50 Pages Posted: 24 Jul 2019 Last revised: 28 Jun 2021

See all articles by Xiao Cen

Xiao Cen

Mays Business School, Texas A&M University

Multiple version iconThere are 2 versions of this paper

Date Written: June 25, 2021

Abstract

This study investigates how smartphone trading technology affects retail investor behavior and mutual fund performance using proprietary individual-level trading data around a natural experiment—the release of a smartphone trading app by a large investment adviser. App adoption raises investor attention and trading volume through amplifying cognitive biases such as self-control problems and overconfidence. The technology shock increases investors’ flow sensitivity to short-term fund returns and market sentiment, and boosts the aggregate flows of app adopters. The funds more exposed to the shock see a greater decline in abnormal returns, which is likely attributed to higher fund flows and liquidity costs. Overall, the findings suggest investors’ adoption of smartphone trading technology can create negative externalities to other investors holding the same funds.

Keywords: Fintech, investor behavior, mutual funds, financial fragility

JEL Classification: G02, G14

Suggested Citation

Cen, Xiao, Smartphone Trading Technology, Investor Behavior, and Financial Fragility (June 25, 2021). Available at SSRN: https://ssrn.com/abstract=3424405 or http://dx.doi.org/10.2139/ssrn.3424405

Xiao Cen (Contact Author)

Mays Business School, Texas A&M University ( email )

430 Wehner
College Station, TX 77843-4218
United States

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