Attention Induced Trading and Returns: Evidence from Robinhood Users

73 Pages Posted: 23 Oct 2020 Last revised: 13 Oct 2021

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: October 12, 2021

Abstract

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

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

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
8,808
Abstract Views
30,537
rank
802
PlumX Metrics