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Digital Technology in Global Financial Markets and Its Effects on Investor Decision Making

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Digital Technology in Global Financial Markets and Its Effects on Investor Decision Making Colby College Digital Commons @ Colby Honors Theses Student Research 2021 ‘The Robinhood Effect’ - Digital technology in global financial markets and its effects on investor decision making Ben Steib Colby College Follow this and additional works at: https://digitalcommons.colby.edu/honorstheses Part of the Communication Technology and New Media Commons, Finance Commons, Finance and Financial Management Commons, and the Science and Technology Studies Commons Colby College theses are protected by copyright. They may be viewed or downloaded from this site for the purposes of research and scholarship. Reproduction or distribution for commercial purposes is prohibited without written permission of the author. Recommended Citation Steib, Ben, "‘The Robinhood Effect’ - Digital technology in global financial markets and its effects on investor decision making" (2021). Honors Theses. Paper 1320. https://digitalcommons.colby.edu/honorstheses/1320 This Honors Thesis (Open Access) is brought to you for free and open access by the Student Research at Digital Commons @ Colby. It has been accepted for inclusion in Honors Theses by an authorized administrator of Digital Commons @ Colby. ‘The Robinhood Effect’ Digital technology in global financial markets and its effects on investor decision making By Ben Steib ‘21 Spring 2021 Colby College Honors Thesis Science, Technology, and Society Program Table of Contents Acknowledgments: ...................................................................................................................................................iv Abstract: ...................................................................................................................................................................vi Definitions: ............................................................................................................................................................. vii Introduction: .............................................................................................................................................................. 2 Interview with Scott Fine, hedge fund manager .................................................................................................... 2 Interview with Tom Joyce, former CEO of Knight Capital Group........................................................................ 4 Chapter 1: The origin of the stock markets and how they worked. ........................................................................... 5 Early access to information .................................................................................................................................. 6 Information for trade ............................................................................................................................................ 8 Chapter 2: Going digital .......................................................................................................................................... 12 The invention of the Internet ............................................................................................................................... 12 Expansion of the Internet .................................................................................................................................... 15 High-Frequency Trading .................................................................................................................................... 18 Chapter 3: Effects of digitalization over time ......................................................................................................... 22 Access to information .......................................................................................................................................... 22 Faster, and from anywhere ................................................................................................................................. 23 Chapter 4: The rise of Robinhood ........................................................................................................................... 25 What is Robinhood? ............................................................................................................................................ 25 Chapter 3: Effects of digitalization over time ......................................................................................................... 26 Access to information .......................................................................................................................................... 26 Faster, and from anywhere ................................................................................................................................. 27 Chapter 4: The rise of Robinhood ........................................................................................................................... 28 What is Robinhood? ............................................................................................................................................ 28 How does Robinhood operate? ........................................................................................................................... 30 Disrupting the industry ....................................................................................................................................... 30 Rise of retail investment ...................................................................................................................................... 35 COVID impact on trading ................................................................................................................................... 36 Chapter 5: GameStop (GME) .................................................................................................................................. 39 Chapter 6: How behaviors and investor decisions are changing ............................................................................. 45 More trading is generally risky business ............................................................................................................ 45 A game or investment? ........................................................................................................................................ 49 Chapter 7: Crashes and consequences ..................................................................................................................... 55 Cybercrime/safety ............................................................................................................................................... 56 Policy changes to account for technology .......................................................................................................... 57 The Knight Capital Trading Glitch ..................................................................................................................... 58 The downsides of retail investing ........................................................................................................................ 59 ii Mind games ......................................................................................................................................................... 61 Chapter 8: Going forward and the future: ............................................................................................................... 64 Conclusion: ............................................................................................................................................................. 67 Major Sources: ........................................................................................................................................................ 70 iii Acknowledgments: First, I would like to thank my thesis advisor, Professor Lijing Jiang, who has guided me on how to write a thesis throughout the entire year. Despite being extremely busy this year, Professor Jiang has always made time for me and had insightful comments and suggestions on my paper. Thank you, Lijing! Second, I would like to thank my second reader, Kara Kugelmeyer, whose class I took my freshman year inspired me to undertake this thesis project. In January 2018, I took her Jan Plan called “Before and After Google,” where we learned about how technology has impacted so many aspects of our life. I wrote my final paper for that class about the impact of technology on the stock market, and since then, the trend of retail investors has only increased, sparking the fire for this thesis. Thank you, Kara, for introducing me to STS and always being a close ally and friend here at Colby. Massive shout out to Scott Fine for all that he has done to help me get interested and exposed to the finance industry and helped me get to where I am today. Scott, thanks for everything. You have been a great mentor, boss, and friend to me. I appreciate the time you took out of your schedule to answer my questions, and I think your input certainly benefited this thesis. On top of that, it was great to catch up as always. Thank you to Tom Joyce for his time as well. It was great to meet Mr. Joyce virtually through my research, and I hope to meet you in person one day. I appreciated you sharing the story of what unfolded at Knight Capital while you were there, and I feel that it added a great example to the impact of technology on the stock market. A big STS thank you to my friend, former professor, and advisor, Jim Fleming. First, I appreciate
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