The Dominance Of Retail Investors And Its Consequences

Retail Investors Haven’t Had Such Influence On Markets Since The 1960s

Retail investors have returned to a level of influence on market behaviour last seen in the 1960s. This greater retail participation is demonstrated by the trends in call option buying, where retail traders have assumed a dominant position since the March 2020 market collapse.

The continuance of this trend, which seems likely, has implications for investors going forward. The most likely result will be a rise in market volatility, as retail traders typically adopt shorter holding periods and possess less emotional discipline than their professional counterparts. Thus, market moves are likely to be more dramatic than during the low volatility 2010s.

The increased presence of retail investors is likely to increase the popularity of “story” stocks and make investor sentiment measures more effective contra=indicators.

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