Attention Induced Trading and Returns: Evidence from Robinhood Users
57 Pages Posted: 23 Oct 2020 Last revised: 25 Nov 2020
Date Written: November 24, 2020
Consistent with attention-induced trading models’ predictions, we link episodes of intense buying by retail investors at the brokerage Robinhood to future negative returns. Average five-day abnormal returns are -3% (-6%) for the top stocks purchased each day (more extreme herding) by Robinhood users. We find that herding episodes are related to the simplified display of information on the Robinhood app and to established proxies for investor attention. These factors lead to more concentrated trading by Robinhood users that can impact pricing. For example, during Robinhood outages, retail investor volume drops significantly among stocks that are likely to capture investor attention.
Keywords: Attention-Induced Trading, Herding, FinTech, Limited Attention, System 1 vs. System 2, Price Pressure, Return Predictability
JEL Classification: G11, G12, G14, G40, G41
Suggested Citation: Suggested Citation