Private investors tend to gamble when they use smartphones to carry out their securities transactions. As a Working Paper by the Leibniz Institute for Financial Research SAFE shows, these individuals tend to choose risky securities with strongly fluctuating prices or buy securities that have generated high returns in the past – which, however, is not a suitable indicator for the future development of returns.
"The increased willingness to take risks cannot be explained by an initial, temporary enthusiasm, but is an expression of a long-term change in investment strategy," says Andreas Hackethal, director of the Household Finance research department at SAFE and one of the authors of the research paper. After investors begin conducting some of their securities transactions via app using smartphones, they not only tend to invest in riskier securities or chase stock trends during these transactions. Rather, the behavior also carries over to transactions they make via other devices, such as their computer.
Investment via app changes investor behavior in the long term
For their analysis, the researchers examined several factors that contribute to more risk-taking investment behavior. For example, mobile apps enable investors to buy and sell securities outside of trading hours. Decisions made in an "after-work mood" may be more emotionally driven than decisions made in a sober atmosphere at the office. Further, apps often present incentives in the form of rankings of the top stocks of the recent past. "In the long run, this change in behavior can lead to a lower efficiency of one's portfolio," Hackethal continues, "This type of investment then becomes more like playing the lottery."
The SAFE Working Paper is based on data from two large retail banks that introduced smartphone applications for securities trading in 2010 and 2013. In total, the researchers analyzed more than 22 million transactions from around 180,000 investors. On average, these users are 45 years old, have nine years of experience with securities transactions, and carry out two percent of these transactions via smartphone. If investors use smartphones at all, however, more than 15 percent of the securities transactions in the sample are carried out via app.
Prof. Dr. Andreas Hackethal
Director of the SAFE research department Household Finance
Phone: +49 69 798 33700