Fee the People: Retail Investor Behavior and Trading Commission Fees

78 Pages Posted: 28 Sep 2022 Last revised: 21 Jan 2023

See all articles by Omri Even-Tov

Omri Even-Tov

Haas School of Business - UC Berkeley

Kimberlyn George

University of California, Berkeley - Haas School of Business

Shimon Kogan

Reichman University - Arison School of Business; University of Pennsylvania - The Wharton School

Eric C. So

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: October 1, 2022

Abstract

We show retail investors are highly responsive to changes in trading commission fees. Using a triple-difference research design around the removal of fees for retail investors on the international retail broker platform, eToro, we show investors responded by trading approximately 30% more frequently, in smaller order sizes, and increasing portfolio turnover. Removing fees also spurred retail investors to reallocate their portfolios and diversify. Retail investors’ gross return performance did not significantly change around the fee removal despite trading more often, but retail investors earned significantly higher returns on a net basis after accounting for fees incurred in the pre-period. Finally, using demographic information, we show removing fees disproportionately affected inexperienced investors with lower deposit amounts and lesser technological sophistication both by expanding the extensive margin of investors and changing trading activity for the intensive margin of investors. Together, our results suggest commission fees play an influential role as a speed bump for retail investor participation, trading activity, and diversification.

Keywords: Retail investors, trading activity, behavioral finance

JEL Classification: G10, G11, G18, G24, G32

Suggested Citation

Even-Tov, Omri and George, Kimberlyn and Kogan, Shimon and So, Eric C., Fee the People: Retail Investor Behavior and Trading Commission Fees (October 1, 2022). MIT Sloan Research Paper No. 6801-22, Available at SSRN: https://ssrn.com/abstract=4226044 or http://dx.doi.org/10.2139/ssrn.4226044

Omri Even-Tov (Contact Author)

Haas School of Business - UC Berkeley ( email )

Haas School of Business
Berkeley, CA 94720
United States
3104302236 (Phone)

Kimberlyn George

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
2817946040 (Phone)

Shimon Kogan

Reichman University - Arison School of Business ( email )

P.O. Box 167
Herzliya, 46150
Israel

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Eric C. So

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

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