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

26 Pages Posted: 8 Oct 2020 Last revised: 27 Jan 2021

See all articles by Michael S. Pagano

Michael S. Pagano

Villanova University - Villanova School of Business

John Sedunov

Villanova University - Department of Finance

Raisa Velthuis

Villanova University - Department of Finance

Date Written: November 20, 2020

Abstract

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

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

Michael S. Pagano

Villanova University - Villanova School of Business ( email )

800 Lancaster Avenue
Villanova, PA 19085-1678
United States
(610) 519-4389 (Phone)

HOME PAGE: http://www90.homepage.villanova.edu/michael.pagano

John Sedunov (Contact Author)

Villanova University - Department of Finance ( email )

800 Lancaster Ave.
Villanova, PA 19085
United States
610-519-4374 (Phone)

HOME PAGE: http://homepage.villanova.edu/john.sedunov/

Raisa Velthuis

Villanova University - Department of Finance ( email )

United States

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