Abstract: Retail investors have become increasingly active in global markets over the past several years. However, the factors that drive retail investors to focus on particular stocks are unclear. Using a sample of UK FTSE 100 stocks, this paper analyses whether stock volatility, liquidity, returns, and trading volume have the power to attract the attention of UK retail investors, measured using the Google Search Volume Index. Overall, this paper finds positive relationships between three of the dynamics (volatility, returns, and daily trading volume) and increased retail investor attention. Greater stock illiquidity also coincides with an increase in the Google Search Volume Index, although this may be due to liquidity-impacting events. When conditioning on stocks by quartiles of market capitalisation, I find that the effects of returns and trading volume are greater in magnitude for the top 25% of stocks.
Working Papers
A Q-Learning Approach to Algorithmic Market Making for Risky
Securities. UCL MSc Economics Dissertation. [PDF available on request]
Abstract: This paper explores algorithmic pricing in a multi-period market microstructure model using a Q-learning algorithm. We focus on how these algorithms respond to the risk posed by a stochastic asset value. In the baseline Q-learning model, the algorithms behave as if loss averse, leading to quotes only at loss-free prices. We consider a series of Q-learning algorithms to investigate the conditions under which these market makers will trade at competitive levels. Using `Imperfect Counterfactual Updating', we show that Algorithmic Market Makers set prices close to competitive levels. In the presence of actions that are both profitable and risk-free for market makers, we find that counterfactual updating is sufficient for trade to occur at competitive levels; when these actions are removed, the algorithms require counterfactual updating and additional exploration to ensure trade. We find that this price-setting behaviour is caused by these algorithms wanting to avoid losses, rather than through profit-seeking collusion.
Unravelling the Influence of Retail Investors on Liquidity and Volatility in UK Markets. UCL BSc Economics Dissertation. [Working Paper (April 2023)]
Abstract: Retail investor presence has been growing in UK markets over the past decade and does not seem likely to fade anytime soon. With the changes in the investing landscape and the boom in investors during the pandemic, it seems necessary to re-evaluate their impact on UK markets. This paper analyses the impact of retail investors on liquidity and volatility using pricing data on the UK FTSE 100 index, website traffic analysis to trading platforms, and the Google Search Volume Index. Overall, I find that retail investing activity contributes to increased stock volatility, particularly for stocks that are more well-known, such as consumer staples and consumer discretionary; they have a positive, but lower than average, impact on financial stocks. I find that these investors had an increased impact on volatility during the pandemic, with this effect remaining in place post-COVID. There is some evidence to suggest that increased investor attention increases liquidity the following week.
Cavatorta, E., Guarino, A. and Huck, S., 2024. Social Learning with Partial and Aggregate Information: Experimental Evidence. Games and Economic Behavior. [view]
Angrisani, M., Cipriani, M., Guarino, A., Kendall, R. and Zarate-Pina, J., 2024. Non-Cognitive Skills at the Time of COVID-19: An Experiment with Professional Traders and Students. The Quarterly Journal of Finance. [view]
Angrisani, M., Cipriani, M. and Guarino, A., 2022. Strategic Sophistication and Trading Profits: An Experiment with Professional Traders. FRB of New York Staff Report, (1044). [view]
Other working papers related to strategic sophistication, trading, and experimental economics.