How did Retail Investors Respond to the COVID-19 Pandemic? The Effect of Robinhood Brokerage Customers on Market Quality

Using data on stocks held by individual investors at retail brokerage firm Robinhood, we document that these investors are actively engaged in both momentum and contrarian trading strategies. In response to the increased volatility and uncertainty in financial markets due to the COVID-19 pandemic in March 2020, we find that retail investors reduce momentum trading and increase contrarian trading activity during the initial phase of this crisis. We also find that the impact of Robinhood investors on several measures of market quality varied depending on market conditions, coinciding with better market quality during less-stressful periods and worse market quality during the early weeks of the pandemic in the U.S.

Keywords: COVID-19 pandemic, financial markets, individual investors, retail trading, herding, Robinhood, Robintrack

JEL Classification: G41, G01, G14

Suggested Citation: Suggested Citation

Pagano, Michael S. and Sedunov, John and Velthuis, Raisa, How did Retail Investors Respond to the COVID-19 Pandemic? The Effect of Robinhood Brokerage Customers on Market Quality (November 20, 2020). Finance Research Letters, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3703815 or http://dx.doi.org/10.2139/ssrn.3703815