Occasional Paper 66: Playing the market: a behavioural data analysis of digital engagement practices and investment outcomes

Read Occasional Paper 66 (PDF)[1]

Summary

DEPs are elements or features, such as push notifications and prize-draws, designed to engage retail investors on digital platforms.

Previous research has shown DEPs can change consumer investment behaviour and may lead to poorer investment outcomes (FCA, 2024[2]).

Our research draws on a large representative sample of consumer data from several platforms that allow users to buy and sell investment products mainly via applications on their phones.  

The dataset is particularly rich as it links individual investor trading records to their credit files.

In terms of consumer financial outcomes, we find that:

• Returns are significantly worse among consumers using high-DEP apps.
• Large losses are 4.8 percentage points more common on the high-DEP apps than low-DEP apps, once demographics are accounted for.

Compared to users of low-DEP apps, consumers of high-DEP apps (and to a lesser extent, medium-DEP apps) are more likely to:

• Be younger and male.
• Display higher levels of engagement on the app.
• Trade more frequently on the app.
• Be in financial distress – but less likely to be so than the population overall.  
• Display elevated, erratic, or concerning trading behaviour.

Our findings show the association between using high-DEP apps and adverse financial outcomes.  

However, the results should not be read as evidence that usage of high-DEP apps causes adverse financial outcomes, as there may be a variety of channels linking high-DEP apps and the financial circumstances of consumers. This is a question for further research.

Authors

John Gathergood, Cameron Gilchrist, Mark D. Griffiths, Lucy Hayes, Emily Morris, Stephen O’Neill, Jesal D. Sheth and Neil Stewart.

Disclaimer

Occasional Papers contribute to the work of the FCA by providing rigorous research results and stimulating debate. While they may not necessarily represent the position of the FCA, they are one source of evidence that the FCA may use while discharging its functions and to inform its views. The FCA endeavours to ensure that research outputs are correct, through checks including independent referee reports, but the nature of such research and choice of research methods is a matter for the authors using their expert judgement. To the extent that Occasional Papers contain any errors or omissions, they should be attributed to the individual authors, rather than to the FCA.