The stock market academics have noted a significant rise in buying the shares of the wrong company. The latest trading hysteria caused by Reddit throughout GameStop exposed the mistakes that investors should know. Different professional investors and trading experts still cannot figure out the share buying mistakes.
“We document that for more than a half of publicly trading stocks you can find a firm with a similar name or ticker symbol. Indeed, for most cases in the recent controversies, there have been stocks with similar or confusing names,” Mr. Balashov told the BBC.
Several buyers started purchasing the wrong shares due to the market panic earlier this month. Some of the investors purchased the wrong shares due to the confusion about the name of the companies.
At the start of 2021, a tweet from Elon Musk got a lot of attention from the investors in which he tweeted about using a messaging app named “Signal” rather than WhatsApp. A private company owns this application and there are no shares of this company in the stock market.
A few investors were confused and they started purchasing the shares of an application named “Signal Advance”. The total shares of this company went up to 1500% due to this confusion.
“We document that both retail and institutional types of investors are equally prone to trades by mistake. You will be surprised how often sophisticated and seasoned investors make the same mistake,” Mr. Balashov said.
The trading professionals and experts have also made some mistakes in purchasing the shares of the wrong company. Elon Musk once used the word Clubhouse in his tweet and the shares of an application “Clubhouse” went up to 100%.
Mr. Balashov and Mr. Nikiforov observed the American stock market from 1933 to 2013 and they published a report on this stock market in 2019. They found out that investors have mistakenly purchased around 5% of the annual trading volume of different businesses under the confusion. The total amount spent to purchase the shares under confusion is around $66m.
A new paper will be published soon in which authors will highlight the following topic.
“Shares purchased under confusion is much more common than previously assumed”
“We believe that the advent of the internet, algorithmic and high-frequency trading can have a two-sided effect on confusion trading,” said Mr. Nikiforov.
The data and information of companies are available these days and the chances of confusion should be lower but the trading professionals are observing these mistakes continuously.
The latest technological advancements in the algorithm of trading should decrease the chances of confusion. But, these machines are still making some silly mistakes while identifying the name or ticker of a company.
Reported by: Zarrish