Forum discussions have influenced the behavior of individual investors.

The results have been published in the "Financial Journal." Often, market participants with limited trading experience rely on the advice and discussions of others due to a lack of sufficient knowledge. This trend became particularly noticeable after 2022, when the number of private investors in Russia surged sharply, partly due to the influx of many new players following the exit of foreign ones. Following the crowd can lead to excessive volatility and the creation of new risks, especially in emerging markets.

Volatility is an indicator of how frequently and significantly the price of an asset changes. The higher the volatility, the more pronounced the price fluctuations, and generally, the greater the risk. Stocks with high volatility tend to attract seasoned investors who are willing to take risks, while more cautious players seeking stability prefer less volatile stocks.

"Our stock market is unique in that it has recently come under significant influence from less qualified players. This can pose serious risks for market liquidity, meaning the stock market's ability to absorb a certain amount of securities at reasonable price changes, as well as for its potential development in the future," comments researcher Maxim Faizulin from the Center for Financial Research and Data Analysis at HSE.

To study the behavior of private investors, Maxim Faizulin employed machine learning methods. He analyzed the sentiment and mood of over four million messages on the most popular online platforms dedicated to the stock market—Tinkoff Pulse, MFD, and SmartLab—from the end of 2019 to the end of 2023, categorizing them as positive, neutral, or negative. The study included the 66 most popular Russian stocks that were most frequently discussed on these platforms.

The securities were divided into two groups based on volatility: high and low. Stocks in the first group had an average daily return of 0.13 percent and a volatility of 2.99 percent, while those in the second group had returns of 0.03 and volatility of two percent, respectively. A special metric, CSAD (the deviation of stock returns from the average market return), was also used to determine how likely investors are to act under the influence of overall market dynamics.

The analysis of the CSAD metric and its relatively high value suggest that Russian investors, in general, are quite independent and strive to make decisions on their own. However, there is a pattern: when active discussions arise on forums regarding the prospects of a particular stock and opinions begin to diverge, cautious investors tend to pay more attention to the majority opinion.

This dependence is observed only for less volatile and more stable securities, which are more often chosen by cautious investors. When opinions diverge, these investors are more likely to follow the overall trend, even if their choice is not linked to positive or negative expectations. In contrast, this pattern does not apply to more volatile stocks: investors who choose such assets are generally more willing to take risks and do not rely on crowd sentiment.

"Following the general trend can signal to us an inefficient functioning of the market itself, as efficiency is primarily achieved when the price of an asset reflects complete information about it, taking into account the financial position of the organization that issued the securities (the issuer). In cases where investors assess not the issuer but the behavior of other players, this is a signal of cognitive biases among retail investors," believes Maxim Faizulin.

The author emphasizes that the influence of public opinion on investment decisions can be significant, but it depends on the specifics of the stocks and the nature of the investors. More detailed patterns of retail investor behavior in the Russian stock market have been described by Maxim Faizulin and his colleagues in a recent monograph, which addressed a number of research questions regarding the heterogeneous nature of investor actions under the influence of market sentiment.