The recent frenzy surrounding GameStop shares has been attributed to retail investors who decided to collectively take on hedge fund short sellers. This has been fuelled by various factors including social media sites like Reddit and Twitter and zero-cost trading apps like Robinhood. It has also encouraged retail investors the world over to take similar action, with a subreddit called Bursabets being set up to be the “Malaysian version” of WallStreetBets, the forum that initially triggered the GameStop surge.

In October 2020, ICMR released a paper entitled Enhancing Financial Literacy in a Digital World: Global Lessons from Behavioural Insights and Implications for Malaysia. Traditional economic theory has often posited that individuals are rational beings who make choices to maximise a utility function, using the information available and processing this information appropriately. Yet behavioural research has shown us that this is not true even with so-called “perfect information”, individuals often act inconsistently or against their own best interests due to other psychological and behavioural factors.

In that paper, we had discussed how the advent of digitalisation could play a huge role in changing the ways investors behave in the capital market, but that it could be a double-edged sword for better or for worse. This recent GameStop rally is proof that this is already happening, and that the intersections between investor behaviour and digitalisation can be consequential.

Click below to download the full paper.