The cause of a puzzling trading increase in shares of companies like Berkshire Hathaway has been identified

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Last Updated on July 21, 2022 by Bitfinsider

Berkshire Hathaway was frequently one of the least traded well-known corporations since its Class A shares are among the market’s most expensive stocks, trading for more than $400,000 per share. So many people were perplexed by a volume increase that started more than a year ago.

A recent study that was published on Wednesday shed light on this trading craze and came to the conclusion that a change in how online brokers like Robinhood and others reported statistics on fractional trading was to blame.

The “Rounding Up” rule, which the authors named, was implemented by the Financial Industry Regulatory Authority in 2017 and requires brokers to disclose fractional trades — often just 1/100th of a share — as if they were for one full share.

Until the spring of 2021, when retail investors’ trading fever brought on by the Covid epidemic increased the use of fractional trading, the impact of this rule change went mostly unreported.

Trading volumes for many equities became greatly overstated as more small deals began to be recorded as whole shares. According to the authors, in Berkshire’s example, this reported “phantom” volume currently accounts for 80% of the Class A shares’ daily trading volume.

In March, shares of Warren Buffett’s Omaha, Nebraska-based conglomerate reached a record high above $500,000. Since then, however, they have fallen more than 20% to roughly $430,000 per share amid a sell-off in the larger market.

According to the report, the trading volume for this expensive brand increased more than tenfold in March 2021 compared to its previous ten-year average daily volume of just 375 shares. Volumes have remained at these high rates.


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Disclaimer: The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, legal, tax or other advice. Investing in or trading cryptocurrency or stocks comes with a risk of financial loss.

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