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Right here’s the primary purpose Robinhood merchants have been in a position to push shares increased — and, no, it isn’t by squeezing hedge funds


With broader stock market indices in a coma this week, the talk about the financial markets is still the retail awakening to the US stock market.

Global stocks saw their largest weekly inflow of cash at $ 5.8 billion, Bank of America said, citing EPFR Global data. Not all of the money comes from day traders, of course, but it’s a mark of frenzy. Michael Every, global strategist at the Dutch bank Rabobank, poses an interesting question. “You can only see how stable a system really is when you logically reach its limits, which we do on several fronts,” he says. “How will it work when 50% of the people decide to swap central bank liquidity for a free ride to prosperity,” he asks. “Obviously someone has to cook and deliver pizzas to those day vendors.”

That question remains unanswered for now (and in any case, it’s chicken tenders, not pizza, for the Reddit WallStreetBets crowd). However, a new research paper quantifies how much the boom in retail investment has had on the US stock market. Using Robinhood Markets account information and large portfolio manager 13-F records, researchers were able to estimate retail and institutional demand.

The effects were massive. Robinhood traders accounted for over 7% of the volatility in stock returns in the second quarter, the researchers found. Without the Robinhood mass, the total market capitalization of the smallest quintile US stocks would have been over 30% lower.

Some well-known companies were moved by Robinhood long before the GameStop mania set in. Ford Motor Co.’s F, -2.64% return would have been 7.5 percentage points lower in the first quarter of 2020 without Robinhood dealers and General Electric GE, + 0.53% would have lost another 2.75 points. In the second quarter, Ford’s return would have been more than 20 percentage points lower, and Delta Air Lines DAL (-0.42%) and United Airlines UAL (-0.78%) would each have been more than 15 points worse, the researchers said .

“The surprisingly large overall impact of the small retail sector is due to the fact that a large part of the stock market is managed by institutional investors with price-inelastic demand curves,” said researchers Philippe van der Beck of the École Polytechnique Fédérale de Lausanne and Swiss Finance Institute and Coralie Jaunin of from the University of Lausanne and the Swiss Finance Institute.

Read the last sentence again and think about it. A large part of the stock market doesn’t care what the price is. Why should they Very popular index funds attempt to replicate indices at all costs. With all due attention to short sellers, the Robinhood crowd can affect the price of large companies that are mostly held by passive institutional investors, the researchers say.

While van der Beck and Jaunin focused their analysis on 2020, they looked at current events. Yes, video game retailer GameStop GME (-0.20%) and movie theater chain AMC Entertainment AMC (-3.28%) had extraordinary rallies as retailers who organized on Reddit’s WallStreetBets forum ousted hedge funds. But what about the headphone manufacturer Koss KOSS, -6.41%,
with negligible short interest that jumped from $ 4 to $ 110?

They applied their methodology specifically to GameStop. Buying 10% of the outstanding GameStop stock could have resulted in its share price increasing 57% based on institutional ownership as of July, the researchers said.

The buzz

Entertainment conglomerate Walt Disney Co. DIS (+ 0.67%) posted a surprising profit in the fourth quarter as subscriptions to Disney + streaming services rose to 94.9 million.

The cloud monitoring service Datadog DDOG (+ 1.77%) offered an outlook for 2021 below Wall Street’s estimates. Cybersecurity firm Cloudflare NET (+ 0.41%) could come under pressure as its profit forecast matches Wall Street estimates.

Bausch Health BHC, + 1.79%, rose 5% in premarket trade, as activist investor Carl Icahn took over an almost 8% stake in the generics manufacturer.

A group of seven finance ministers and central bankers will have a virtual meeting with a lecture at 10 a.m. east.

The University of Michigan Consumer Sentiment Index highlights the economic calendar. The UK saw GDP grow 1% in the fourth quarter, but saw it decline 9.9% for 2020, its worst performance in more than 300 years.

The market

US stock futures ES00, -0.25% NQ00, -0.17% were lower Friday morning with most of Asia closed for New Year celebrations.

The gap between the yields of the Italian TMBMKIT-10Y (0.443%) and the German TMBMKDE-10Y (-0.460%) for 10-year bonds fell to its lowest level in six years when the 5-star movement joined one overwhelmingly supported by Mario Draghi-led government. the former President of the European Central Bank.

The tweet

“Pink elephants on the moon” is one way of describing the current market environment.

Random readings

Well worth checking out this 2015 Vanity Fair profile of Whitney Wolfe Herd who is now a billionaire after online dating app Bumbles BMBL made + 63.51% trading debut on Thursday.

Red wine, champagne, and baked Alaska – the 117-year-old nun who survived COVID-19 celebrated in style.

These pigs can play video games – and are pretty good too.

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