Start Small and Stay Small: Anchoring in App-Based Investing

Jennifer Itzkowitz, Jesse Itzkowitz and Andrew Schwartz

Journal of Behavioral Finance, 2024, vol. 25, issue 4, 464-480

Abstract: Stock trading apps have encouraged millions of people to begin micro-investing. While investing is beneficial in the long-run, we demonstrate a potential downside to the micro-investing trend. Using a novel data set of stock trades from an app-based broker, we show that anchoring leads to lower wealth accumulation when investors start their journey with a small first purchase. A unique feature of the broker’s platform allows us to disentangle anchoring from a rational repetition strategy: stock gift cards. Since the value of a stock gift card is determined exogenously, the amount of that gift card represents a true external anchor for the recipient, affecting subsequent behaviors. Over one year, a $1 increase in the amount of an investor’s initial stock purchase results in a $4.63 increase in the total amount that an investor contributes to their investment account, all else equal.

Date: 2024
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DOI: 10.1080/15427560.2023.2209233

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