Retail investors now account for 10% of daily trading volume on the Russell 3000, the broadest U.S. stock index, after peaking at 15% in September of last year, according to investment bank Morgan Stanley.
The retail trading frenzy from last summer carried over into 2021 with so-called "meme stocks" such as GameStop and AMC Entertainment soaring more than 1,000%, leaving professional traders perplexed.
The average daily trading volume on the Russell 3000 index over the last week was $380 billion U.S., according to Refinitiv data, meaning individual traders contributed around $38 billion U.S. per day.
Morgan Stanley says the phenomenon has prompted many questions from its clients about how to effectively estimate retail activity.
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 retail traders have bifurcated quality preference, with greatest activity in both high quality and junk stocks.
