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   This continues the first part of the paper Stock Markets In The Age Of The Internet.


   The chicken or egg dilemma

   The effect of the Web on the investors' behaviours is not very clear and begins hardly to generate some interest from the university research. Although the emergence of the World Wide Web has coincided with a rise of the transactions' volume, it is difficult to determine if this rise was caused by the Internet diffusion.

   The euphoria for the high technology securities has spread to all kind of investors, would they be Net surfers or not. Moreover, the telephone already made it possible to simplify and mechanize the transactions without the relay of a broker or a telephone operator.

   There are several advantages to use Internet for stock exchange transactions. Firstly, the very low cost, in particular when compared with a full-service broker. Secondly, the speed of execution and the automatic access to the results of the transmitted orders. Would it be only for these two reasons, an investor who uses Internet for the first time to execute his transactions could be tempted to become more active, without paying more than before.

   A quite imperfect way to measure the direct influence of Internet on the investors' practices consists in observing what occurs when this tool is introduced by an external source. In the United States, this is what happens when the large companies offer to their employees a formula enabling them to manage their company retirement accounts using the Internet network.

   Professors James. J Choi, David Laibson and Andrew Metrick had access to the accounts of more than 100000 employees of two large companies, which ones made it possible to make stock exchange transactions by Internet.

   Eighteen months after having obtained from their employers the access to this tool, the stock exchange transactions had quadrupled and represented more than 60% of the total of the executed transactions.

   When, during the studied period, they compared the employers who offered Internet to those which did not offer it yet to their employees, the stock exchange transactions in the first group were twice more numerous than in the second. In other words, the use of Internet seems to encourage the investors to make more transactions than if they did not have access to it. As a result the annual portfolio turnover had increased, on average, of 50%.

   About the characteristics of the investors who use Internet, the three researchers noted that the standard profile is the one of a young man whose income is definitely higher than the average.

   Surprisingly, the investors who had already a high rate of stock exchange transactions to their file were not very attracted by Internet. They preferred to execute their transactions by more traditional means, like an automated telephone service or a full- service broker.

   However, as soon as an investor tried Internet, it tends to turn to this means of transaction rather than to go back to more traditional methods. After having executed two transactions by Internet, the investor has more than 94% of chances to make the third by the same way.

   Lastly, even if the Net surfer investor is richer than the average, the transactions by Internet tend to be of less importance that those which are realized by other means, in terms of dollars as well as in portion of the portfolio.

   Between 1995 and 2000, the American investors opened a total of 12,5 million accounts on line, a figure which could climb to more than 42 millions in 2003, according to the firm Cerulli Associates.

   According to a research report from the New York Stock Exchange, the on line transactions, at the end of the Nineties, counted for half of all the transactions executed by the individual investors in the United States. However, there are three times more traditional accounts (off line) that on line accounts.

   In other words, the investors who use Internet for their transactions are much more active than those who do not use it yet.

   When put together the transactions of the private individuals and the institutional investors, it appears however that the on line transactions count only for 20% of the transactions' total volume. The traditional brokers still control the largest part of the stock exchange activities in America. But for how long?

   Barber, B. et T. Odean, «The Internet and the investor», Journal of Economic Perspectives, winter 2001, p. 41-54.

   Choi, James J., Laibson, David et Andrew Metrick, «Does the Internet increase trading? Evidence from investor behavior in 401 (k) plans», National Bureau of Economic Research, July 2000.

   André Gosselin

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