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The
retail frenzy from last summer carried over into 2021 with
so-called "meme stocks" like GameStop and AMC Entertainment
rapidly soaring more than 1,000 percent, leaving professional
traders perplexed.
The average daily trading volume on the Russell 3000 index over
the last five days was $380 billion, according to Refinitiv
data, meaning individual traders contributed around $38 billion
a day.
European retail investors on the other hand make up a 5% share
of total market volume, Euronext recently said.
Morgan Stanley says the phenomenon has prompted many questions
from its clients about how to effectively estimate retail
activity.
"We find that retail investors tend to prefer companies in
sectors they are likely to be familiar with as consumers, such
as consumer discretionary, communication services, and
technology," the U.S. investment bank said in a note.
Applying its own methodologies, Morgan Stanley found that over
the five-year period from July 2016 to June 2021, stocks with
high retail participation continued to outperform stocks with
low retail participation over the subsequent one month.
The bank's number crunching also highlighted that these traders
have bifurcated quality preference, with greatest activity in
high quality and junk names.
Meta Material, formerly Torchlight Energy, was the latest name
to see huge speculative bets by small individual traders. Clover
Health Investments and Koss Corp were other names that made
headlines on a retail trading frenzy.
(Reporting by Thyagaraju Adinarayan; Editing by Kirsten Donovan)
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