Attention Induced Trading and Returns: Evidence from Robinhood Users

We study the influence of financial innovation by fintech brokerages on individual investors’ trading and stock prices. Using data from Robinhood, we find that Robinhood investors engage in more attention-induced trading than other retail investors. For example, Robinhood outages disproportionately reduce trading in high-attention stocks. While this evidence is consistent with Robinhood attracting relatively inexperienced investors, we show that it can also be partially driven by the app’s unique features. Consistent with models of attention-induced trading, intense buying by Robinhood users forecast negative returns. Average 20-day abnormal returns are -4.7% for the top stocks purchased each day.

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

Barber, Brad M. and Huang, Xing and Odean, Terrance and Schwarz, Christopher, Attention Induced Trading and Returns: Evidence from Robinhood Users (October 12, 2021). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3715077 or http://dx.doi.org/10.2139/ssrn.3715077