Retail Investors' day-0 returns

• Grant number: 24/09763-1
• Support Opportunities: Scholarships in Brazil - Doctorate
• Start date: November 01, 2024
• End date: May 31, 2026
• Field of knowledge: Applied Social Sciences - Economics - Fiscal and Monetary Policies
• Principal Investigator: Fernando Daniel Chague
• Grantee: Matheus Carrijo de Brito
• Host Institution: Escola de Economia de São Paulo (EESP). Fundação Getúlio Vargas (FGV). São Paulo , SP, Brazil

Abstract

This research investigates the day-0 returns of retail investors in the Brazilian stock market, focusing on the immediate impact of trades executed on the day of the transaction. Despite the significant rise in retail investor participation, these investors often experience substantial losses on the day of the trade, which significantly affect their overall portfolio performance. Utilizing data from the Brazilian regulatory authority (CVM) and Bloomberg, the study examines the economic drivers behind these day-0 returns, exploring factors such as order types, trade timing, market volatility, and information flow. The findings indicate that retail investors incur an average loss of 100 basis points on the day of the trade, with these losses not being offset in the short term. The research highlights the necessity for retail investors to avoid trading during regular market hours to mitigate these losses, suggesting policy recommendations for improved investment strategies. Additionally, the study compares Brazilian data with U.S. data to understand the disparities in retail investor performance due to differing regulatory environments and trading mechanisms. The results provide new insights into the behavioral patterns of retail investors and their implications on market dynamics.