The Top 5 Predictable Effects of New Entries in Robinhood’s ‘100 Most Popular’ List

Abstract

The trading app Robinhood maintains a list of the 100 stocks most widely held by its users. Using a novel dataset of stock popularity with Robinhood user, I focus on new securities that enter the list. I document the strong effect that salience of new Top 100 listing events has on the attention of Robinhood users, who are between 5 to 7 times likelier to buy these newly listed securities. The resulting demand causes a dramatic, though short-term price increase. A strategy that buys stocks a day after listing and sells them two days later, obtains a return of 458% over the period studied, compared with 24% generated by the market. This effect is mostly observed in smaller stocks, and is not accompanied by market-wide trading. Since retail investors tend to consume information available exclusively within their app or web site of choice, these apps wield increasingly more influence on how investors make trading decisions, even through means as simple as a list. As FinTech reduces trading costs and attracts users, this power can reach beyond the app's ecosystem to the market itself, to directly affecting asset prices.

Keywords: Information, salience, investor attention, retail investors, asset pricing, FinTech

JEL Classification: G11, G12, G14, G41