Retail Investors: Reduced to Quantitative Metrics

In recent years, the rapid advancement of internet technology, especially the extensive adoption of big data, has transformed the landscape of stock market investing. Investors now have access to a multitude of platforms for obtaining market information, and the avenues for expressing their opinions have become increasingly diverse.

Today, both new and veteran stock traders have congregated on short video platforms, creating a robust community that is often enveloped in an "information cocoon." Influenced by prominent figures, or "Big V's," these traders collectively decide to buy or sell stocks, often in a synchronized manner. This coordination is not just a casual occurrence; it highlights a new dimension of retail trading where social media interactions can precipitate significant market movements.

Recently, the Financial Street Forum garnered attention, with a video of a leader proclaiming “How many times can one gamble in life?” going viral. In the aftermath, there was a surge of investment into specific stocks like YiBo Technology, semiconductor firms, and established companies such as Dongfang Caifu and Citic Securities. YiBo Technology even hit its daily trading limit due to this collective buying frenzy. These instances have now become commonplace, revealing how dependent retail investors are on short video platforms to make their trading decisions. In this era of what could be termed "information equality," investors band together to drive stock prices, leaving a profound impact on the market dynamics.

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This shift has significantly intensified the characteristic volatility of the A-share market, creating a more extreme ecosystem. Some institutional investors have started to incorporate retail sentiment into their quantitative analyses, treating the emotional climate of the masses as data points.

Retail investors have effectively become the parameters for quantitative analysis. For example, on September 24, a notable surge in the market prompted an immense rise in investor engagement, with discussions around stock trading skyrocketing on various social media platforms.

The current rally in the stock market has originated from short video platforms, spread through image and text-based platforms, and eventually permeated news portals and search engines. Thanks to the inherent advantages of short videos in terms of rapid dissemination, these platforms were where the market's heat initially ignited. Furthermore, the effects of live-stream shopping have made it easier for users' emotions to be stirred up, leading to impulsive buying behavior, which in turn results in high-frequency trading and swift fluctuations in platform popularity.

However, despite the energetic atmosphere, the reality for retail investors is that the market ecology may actually be deteriorating. For institutional players, retail investors were previously elusive variables that were hard to observe. With the rise of self-media platforms and the amplification of herd behavior, these retail investors have morphed into observable and even predictable variables.

Institutions are keenly monitoring the vocal “Big V’s” on social media platforms as well as the retail investors who follow them. They are gradually incorporating the behavioral patterns of these influencers and their audiences into their quantitative trading models.

Specifically, institutions are utilizing big data technologies to conduct sentiment analysis across short video platforms and social media. They collect data related to specific stocks, such as comments, likes, and shares. By applying natural language processing techniques, these institutions can analyze the emotional tone of social media comments, categorizing them as positive, negative, or neutral, which assists in assessing shifts in market sentiment.

For instance, when a short video platform is inundated with excessive praise for a particular stock, signifying an optimistic market sentiment, institutional investors may choose to sell their holdings. Conversely, when market sentiment falls into extreme pessimism, these institutions might sense an opportunity to invest.

According to reports from Titanium Media, a professional involved in quantitative fund management noted that, “In our neutral strategies, we need to adjust the weight of industry stocks daily. When determining which index to focus on and whether to go long or short, we frequently base our analyses on sentiment data. The influence of sentiment can account for as much as 30% in different strategies.”

“In addition to relying on machine-driven analyses, we also manually integrate new fundamental factors, such as increased discussions around mergers and acquisitions. If the term 'self-controllable' appears more frequently in the market, we will also document that,” the professional explains. Institutions continuously refine their strategies based on public sentiment, historical performance, and the relevance of major stocks.

In this self-media era, the alliance between "Big V’s" and retail investors intensifies market fluctuations and heightens the prevalence of irrational trading behaviors. Activities like promoting stocks in live-streaming sessions often provide large funds the opportunity to manipulate and direct retail investors’ actions.

Unfortunately, there is little that professional institutions can do to counteract this trend. Although many institutions are now focusing on investor education, regulatory constraints prevent them from communicating in the same free-spirited manner as influencers or from portraying contrasting narratives in live streams.

To address this chaotic situation, it is essential for regulatory bodies to intervene, applying pressure on platforms to enhance their scrutiny of financial content. This includes rigorous vetting of influencers' professional qualifications and ensuring compliance with relevant laws and regulations governing online content.

The stock market has ignited a wave of emotions, which in turn fuels traffic. In the age of short videos, it seems that anyone can assume the role of a “master” on the other side of the screen, sometimes even being idolized in the financial realm. For the everyday investor, however, it is crucial to prioritize investments in sound industries, followed by the flexible allocation of stocks. A return to rationality, coupled with the retreat of emotion, is necessary as we embrace certainty—keeping in mind that the stock market inherently involves risks.