Fractional Trading

58 Pages Posted: 10 Nov 2021 Last revised: 19 Nov 2021

See all articles by Zhi Da

Zhi Da

University of Notre Dame - Mendoza College of Business

Vivian W. Fang

University of Minnesota - Twin Cities - Carlson School of Management; European Corporate Governance Institute (ECGI)

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 full share—allows low-budget retail investors to trade high-priced stocks. Since FT's introduction in late 2019, high-priced stocks have evidenced a sharp increase in retail ownership and trading. We exploit the staggered introduction of FT and distribution of stimulus checks for identification. While fractional trades are small individually, they can work collectively to generate price pressures and reversals if coordinated through attention-inducing events (such as being featured in Robinhood's Top Mover list or stock split announcements). Although arguably less necessary, stock splits post-FT generate positive but transitory price pressure and facilitate insider selling.

Keywords: Fractional Trading, Retail Investors, Fintech, Market Efficiency, Social Media, Stock Split, Coordination, 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

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

European Corporate Governance Institute (ECGI) ( email )

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

Wenwei Lin

University of Minnesota, Carlson School of Management ( email )

321 19th Avenue South
Minneapolis, MN 55455
United States

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