Academics have quantified what many have long suspected, that retail investors are punching well above their weight in the stock market. Individual investors had an impact five times the size of their estimated assets in the second quarter of 2020, according to recent research from the Swiss Finance Institute. They added 1 per cent to the aggregate stock market valuation in that period, and 20 per cent to the value of small-cap shares, Philippe van der Beck and Coralie Jaunin wrote in a paper published in SSRN, a repository of academic research.

“Robinhood demand substantially alleviated the negative returns observed in the first quarter,” of 2020, the pair wrote. “The return effects of Robinhood demand are even more pronounced during the recovery.”

The researchers found that despite an estimated share of 0.2 per cent of aggregate U.S. market capitalization, traders on the popular retail trading app accounted for 10 per cent of the variation in stock returns in the second quarter of last year, when the rebound from the pandemic selloff began in earnest. That’s because the smaller investors react more strongly to price changes than their institutional counterparts, they said.

A combination of free trading apps such as Robinhood and direct government stimulus helped fuel a boom in retail involvement in the US stock market, most notably from first-time investors. Their influence has begun to impact markets, most notably during the recent GameStop Corp. share frenzy, and trading volumes have skyrocketed.