We study the trading behavior of retail investors in the market of leveraged bank-issued retail derivatives designed to trade excessively, speculate and gamble on ongoing trends and market movements. We analyze whether retail investors have private information and benefit disproportionately or whether they gamble. We answer this question along three dimensions: (i) profitability, (ii) news trading, and (iii) sensitivity to implicit trading costs. We distinguish derivatives by the type of underlying (index vs. individual stocks). We find that raw returns are negative for derivatives with stock as underlying, and only partially positive for those with index as underlying. Nevertheless, riskadjusted returns show a poor performance with sharpe ratios below one. We show that retail investors are attracted by news, but do not have private information prior to news events. Finally, we categorize investors according to their sensitivity to implicit trading costs. We find that non-sensitive investors perform worse than sensitive investors. JEL Classification: G10, G14.

We study the trading behavior of retail investors in the market of leveraged bank-issued retail derivatives designed to trade excessively, speculate and gamble on ongoing trends and market movements. We analyze whether retail investors have private information and benefit disproportionately or whether they gamble. We answer this question along three dimensions: (i) profitability, (ii) news trading, and (iii) sensitivity to implicit trading costs. We distinguish derivatives by the type of underlying (index vs. individual stocks). We find that raw returns are negative for derivatives with stock as underlying, and only partially positive for those with index as underlying. Nevertheless, riskadjusted returns show a poor performance with sharpe ratios below one. We show that retail investors are attracted by news, but do not have private information prior to news events. Finally, we categorize investors according to their sensitivity to implicit trading costs. We find that non-sensitive investors perform worse than sensitive investors.JEL Classification: G10, G14.

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We study the impact of retail investor information demand on trading in bank-issued investment and leverage structured products, which are specifically designed for retail investors. Stock-specific information demand positively predicts speculative trading activity. Furthermore, we find a positive relationship between market-wide information demand and order aggressiveness and order uncertainty for speculating and investing activity. Whereas information supply is associated with speculative long positions, information demand does not induce investors to be predominantly long or short. Finally, we do not find retail investor information demand to contribute to an upward price pressure on security prices. In contrast, information supply exerts negative price pressure. Overall, retail investor trading in individual stocks is much more strongly influenced by market-wide information demand instead of firm-specific information demand. This implies a low informational efficiency of retail investor speculation and investing activity.

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