Attention Induced Trading and Returns: Evidence from Robinhood Users

57 Pages Posted: 23 Oct 2020 Last revised: 25 Nov 2020

See all articles by Brad M. Barber

Brad M. Barber

University of California, Davis

Xing Huang

Washington University in St. Louis - Olin Business School

Terrance Odean

University of California, Berkeley - Haas School of Business

Christopher Schwarz

University of California at Irvine

Date Written: November 24, 2020

Abstract

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

Barber, Brad M. and Huang, Xing and Odean, Terrance and Schwarz, Christopher, Attention Induced Trading and Returns: Evidence from Robinhood Users (November 24, 2020). Available at SSRN: https://ssrn.com/abstract=3715077 or http://dx.doi.org/10.2139/ssrn.3715077

Brad M. Barber

University of California, Davis ( email )

Graduate School of Management
One Shields Avenue
Davis, CA 95616
United States
530-752-0512 (Phone)
530-752-2924 (Fax)

Xing Huang (Contact Author)

Washington University in St. Louis - Olin Business School ( email )

Simon Hall 211
Washington University in St. Louis
St. Louis, MO 63130
United States

Terrance Odean

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
510-642-6767 (Phone)
510-666-2561 (Fax)

HOME PAGE: http://www.haas.berkeley.edu/faculty/odean.html

Christopher Schwarz

University of California at Irvine ( email )

Irvine, CA 92697-3125
United States

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