Robinhood's Fractional Trading Caused a Fictitious Increase in Volume of Stock of Berkshire Hathaway

According to a media agency, Warren Buffett was perplexed by a sharp increase in trading volume in his Berkshire Hathaway Class A stock over the past year. The stock's average daily trading volume more than quadrupled from less than 400 shares before February 2021 to about 2,000 shares today. The stock has never been split and currently trades for more than $429,000 per share.

Buffett reportedly believed the data to be inaccurate. According to a new study, the trading frenzy was actually being driven by regular retail investors who were trading fractional shares of the stock, which were made possible by brokerage firms like Robinhood. The trading volume surge led some to believe that a mystery buyer was vying for control of the storied conglomerate.

The study discovered that firms must report off-exchange trading volume under FINRA's "round up" rule, and when a fractional trade is executed, it is rounded up to 1 whole share being traded.

"The FINRA reporting rule for fractional trading has created significant distortions," the research authors wrote. The study was conducted by professors Robert Bartlett of the University of California, Berkeley, Justin McCrary of Columbia University, and Maureen O'Hara of Cornell University.