Fractional Trading

70 Pages Posted: 10 Nov 2021 Last revised: 16 Jan 2024

See all articles by Zhi Da

Zhi Da

University of Notre Dame - Mendoza College of Business

Vivian W. Fang

European Corporate Governance Institute (ECGI); Indiana University

Wenwei Lin

University of Minnesota, Carlson School of Management

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

Da, Zhi and Fang, Vivian W. and Lin, Wenwei, Fractional Trading (November 18, 2021). Available at SSRN: https://ssrn.com/abstract=3949697 or http://dx.doi.org/10.2139/ssrn.3949697

Zhi Da (Contact Author)

University of Notre Dame - Mendoza College of Business ( email )

Notre Dame, IN 46556-5646
United States

Vivian W. Fang

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Indiana University ( email )

Bloomington, IN 47405
United States
47405 (Fax)

Wenwei Lin

University of Minnesota, Carlson School of Management ( email )

321 19th Avenue South
Minneapolis, MN 55455
United States

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