AI Boosts Retail Trading Volume: Research
Evidence from Italy’s ChatGPT ban shows AI expands the set of assets retail investors trade.
“The price of intelligence is going to zero.”
I’ve thought of this quote often since interviewing Tharsis Souza, now at Citadel, in a podcast episode in January last year.
Souza presciently highlighted the diminishing costs of expert analysis. (Check out the recording here.)
I’ve seen more and more examples of this, in my own life, like trying to sort out a hairy Italian-U.S. tax issue with the help of ChatGPT.
More empirically, studies are coming out showing how much investors are using AI to broaden their investing universe.
When Italy Banned ChatGPT, Retail Traders Narrowed Their Bets
In March 2023, Italian regulators forced OpenAI to suspend service over data privacy concerns.
This 28-day blackout created a natural experiment, revealing how the sudden loss of a leading AI tool—available to neighboring countries but denied to Italians—altered trading behavior.
The Study
A research team led by Omri Even-Tov (UC Berkeley) analyzed granular, account-level data from the brokerage platform eToro.
The Scope: 3 million accounts across 100+ countries, covering stocks, crypto, ETFs, and commodities. The paper’s final analysis sample consists of 24,185 investors and 169,295 investor-month observations from Italy and neighboring control countries between January and July 2023.
The Method: They compared Italian investors (the treatment group) against peers in France, Switzerland, Austria, and Slovenia (the control group).
The Key Finding: Narrowed Horizons
The researchers used the Herfindahl-Hirschman Index (HHI) to measure trade concentration. While the average retail investor typically sticks to 2–3 assets, the ban caused Italian portfolios to shrink even further.
The Spike: During the ban, Italian trade concentration rose by ~3.1% relative to the control group.
The Proof: The data showed a “dynamic” shift—the concentration spike appeared only during the month of the ban.
The Rebound: Once the ban was lifted, Italian investors did not immediately return to their pre-ban behavior, even showing a brief “overcorrection” as they explored new assets to make up for lost time.
The ban also reduced the likelihood that investors would initiate trades in assets they hadn’t previously touched. The odds of adding a new asset declined by roughly 10.3% during the ban. And trading shifted toward popular assets (the top 50, top 100, top 200 by aggregate retail volume) while pulling away from the long tail.
Not Just Behavior — Prices Moved Too
Even-Tov’s study captures what happened at the account level. But a separate team had already used the same Italy ban to measure something different: what happened to stock prices.
A separate study used the same Italy ChatGPT ban to examine market-level effects. The authors find that Italian firms with higher exposure to generative AI underperformed by roughly 9 percent during the ban. Bid-ask spreads widened, and analysts based in Italy issued fewer forecasts.
That’s two studies exploiting the same 28-day shock, measuring different outcomes, and arriving at the same directional conclusion: removing access to GenAI compressed both participation and market quality.
Where the Effect Was Strongest
Researchers sliced the data by asset class, investor characteristics, and firm characteristics.
By asset class, the results were driven by stocks and cryptocurrencies. ETFs, commodities, and currencies showed no significant effect. That’s consistent with the information processing story: stocks and crypto involve large volumes of unstructured, or hard-to-verify information. ETFs and commodities track standardized benchmarks. There’s less for an AI tool to help with.
By investor type, the effect was strongest among investors with lower income or less trading experience (consistent with those investors facing higher information processing costs) and among investors in technology-related occupations or students (consistent with higher likelihood of actually using ChatGPT in the first place).
By firm characteristics, the decline in trading activity was steeper for hard-to-value stocks. Firms with lower profitability or higher volatility saw the largest drop in Italian investor participation during the ban. The effect also intensified around earnings announcements, when investors face concentrated releases of financial data.
The Portfolio Consequences
Higher trade concentration has downstream effects. During the ban, Italian investors’ portfolios exhibited more return comovement across holdings and higher portfolio volatility. Fewer distinct positions, more overlap in the stocks they held, less diversification.
One thing to note: the ban had no detectable effect on risk-adjusted trading performance. Investors weren’t making worse picks during the ban. They were just making fewer of them, and those picks looked more alike. GenAI appears to broaden the set of assets retail investors consider, but there’s no evidence (at least in this 28-day window) that it helps them choose better ones.
Investors weren’t making worse picks during the ban. They were just making fewer of them, and those picks looked more alike.
