The coronavirus pandemic appears to be spurring retail investors into action. These are the findings of a recent BaFin study which examined the trading behaviour of retail investors since the outbreak of the crisis and compared this with the approach taken by institutional investors.
The study is based on transaction data reported in accordance with the European Markets in Financial Instruments Regulation (MiFIR) which provide an insight into purchases and sales of financial instruments by retail investors. BaFin’s study examines how trading activity has developed since the onset of the crisis in February 2020 – and has unveiled some interesting results for Germany.
Increase in share trading
The study reveals that trading activity on the part of retail investors has increased significantly since the outbreak of the coronavirus crisis at the end of February. Trading in shares has risen in particular. Currently one in two transactions in financial instruments executed by retail investors takes place on the stock market.
In normal times, buy and sell volumes are well balanced. Yet, the sharp fall in share prices at the beginning of the crisis initially resulted in a sizeable excess of share sales (see info box). Since early March, however, a reverse situation can be noted – trading activity is still generally high, but retail investors are now buying far more than they are selling.
Definition: Excess of share purchases and sales
The term excess is used in this context to describe the ratio of purchases to sales on the stock market. An excess of purchases exists when investors buy more shares than they sell. Conversely, a sales excess exists when more shares are sold than purchased.
German investors turning to DAX shares
The excess of purchases is especially pronounced among investors with German nationality. The study shows that they are focusing in particular on shares listed on the German DAX stock index. The volume of purchases exceeded that of sales by approximately 60 percent on average.
Figure 1 reveals a clear divergence between transactions carried out from the end of February until early April and the usual trading activity of German investors in DAX shares; this activity is usually characterised by a balanced ratio of purchases to sales, which is shown in the chart as the horizontal dashed line.
Figure 1: Transaction volumes of German investors in DAX shares
In the case of investors without German nationality, the excess of purchases in transactions involving DAX shares is somewhat lower at 30 percent.
Share trading of institutional investors more balanced
In contrast, an increase in trading volumes could initially also be noted in the trading activities of institutional investors in DAX shares, but this was not characterised by a significant excess of sales at the end of February or an excess of purchases in early March.
Moreover, the trading volume of institutional investors has returned to its pre-crisis level since the end of March.
Increase in trading with leverage certificates and CFDs
In addition to shares, retail investors are primarily trading in ETFs (Exchange-Traded Funds), leverage certificates (see expert article on the BaFin website dated 16 January 2020 ) and CFDs (Contracts for Difference).
Trading in leverage certificates and CFDs has increased significantly since the beginning of the coronavirus crisis. Nevertheless, no excess of purchases or sales indicative of a divergence from usual trading behaviour can be noted in these asset classes. As regards trading in ETFs, the analysed transaction data do not allow any reliable conclusions to be drawn regarding changes in trading behaviour on the part of retail investors.
Consumers investing in the stock market
The past few weeks have shown that consumers change their investment behaviour in times of crisis and that their approach is different to that of institutional investors. In the current situation, consumers are being increasingly drawn to the stock market, undeterred by the high volatility, where they are turning to well-established blue chips. Despite the risk of losses in value, which could occur in the event of share price corrections, many consumers evidently see good opportunities to start investing in the stock market.
BaFin Division for Market Abuse Analysis (Data Analysis Unit)
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