A Fractional Solution to a Stock Market Mystery

Abstract

Since 2021, surging volume in Berkshire Hathaway-A has mystified market watchers. Averaging daily volume of 375 shares for a decade, its daily volume has quintupled, representing billions of dollars of additional trading. We demonstrate that this new volume is nonexistent—the result of FINRA reporting rules, retail trading, and fractional shares. Phantom volume now represents 80-90% of BRK.A’s daily volume and creates dislocations in BRK.A’s relationship to its paired stock BRK.B, missed arbitrage opportunities, higher trading costs, and incentives for manipulation. We argue that outdated and short-sighted regulations can pose a limit to arbitrage, and we suggest that how to improve transparency in the national market system is the real mystery.

Keywords: fractional shares, Berkshire-Hathaway, Robinhood Trading, FINRA, trade reporting

JEL Classification: G14, G21, G23, G24