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
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
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
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-
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
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
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