Study: Why Young Adults Are Taking Big Risks On AMC And GameStop

Young traders entered the stock market in droves in the past year, many betting on popular meme stocks like GameStop Corp. GME and AMC Entertainment Holdings Inc AMC.

These two financially challenged and relatively low-rated stocks are far from safe, blue-chip investments, and a new study by the University of Sydney School of Economics sheds some light on why young traders are willing to make such big bets on a pair of extremely risky stocks.

YOLO Trading: One of the hallmarks of meme stock mania is that traders on Reddit, Twitter and elsewhere are posting screenshots of their "YOLO trades" and documenting their buys for the whole world to see. The University of Sydney study found young adults aged 18 to 24 are more likely to engage in riskier financial behavior when they are being observed by others.

“Perhaps they were motivated to take greater risks in each other’s (online) company,” lead author Professor Agnieszka Tymula said of the WallStreetBets community.

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The Study: In the study, researchers found that, when given the choice between a fixed amount of money received with certainty and a risky lottery option with a potential for a large payout, young adults aged 18 to 24 were more likely to choose the high-risk option when they were being observed by others rather than when they were making the choice in private.

“We know that young adults generally have a greater appetite for risk. Our study lends further credence to the notion that this appetite grows when in the company of peers,” Tymula said.

Benzinga’s Take: Peer pressure is certainly not a new phenomenon, and it makes sense that young traders would feel pressure on social media to prove to friends they are brave enough to make speculative bets on high-risk stocks.

It’s not breaking news that young people engage in risky behavior, and it’s not necessarily a bad thing for young traders to take risks in the market at a young age when a negative outcome is least likely to have a lasting impact on their financial well-being.