The Equity Market Implications of the Retail Investment Boom

Swiss Finance Institute Research Paper No. 21-12

Winner of the Swiss Finance Institute Best Paper Doctoral Award 2021

55 Pages Posted: 2 Feb 2021 Last revised: 29 Jun 2021

See all articles by Philippe van der Beck

Philippe van der Beck

Ecole Polytechnique Fédérale de Lausanne

Coralie Jaunin

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne); Swiss Finance Institute

Date Written: January 30, 2021

Abstract

This paper quantifies the impact of Robinhood traders on the US equity market. Within a structural model, we estimate retail and institutional demand curves and derive aggregate pricing implications via market clearing. The inelastic nature of institutional demand allows Robinhood traders to have a substantial effect on stock prices. Despite their negligible market share of 0.2%, Robinhood traders account for 10% of the cross-sectional variation in stock returns during the second quarter of 2020. Furthermore, without the surge in retail trading activity the aggregate market capitalization of the smallest size quintile of stocks would have been 25% lower.

Keywords: Retail investors, Demand system, Institutional investors, COVID-19, Robinhood

JEL Classification: G11, G14, G12, G23

Suggested Citation

van der Beck, Philippe and Jaunin, Coralie, The Equity Market Implications of the Retail Investment Boom (January 30, 2021). Swiss Finance Institute Research Paper No. 21-12, Winner of the Swiss Finance Institute Best Paper Doctoral Award 2021, Available at SSRN: https://ssrn.com/abstract=3776421 or http://dx.doi.org/10.2139/ssrn.3776421

Philippe Van der Beck (Contact Author)

Ecole Polytechnique Fédérale de Lausanne ( email )

Quartier UNIL-Dorigny, Bâtiment Extranef, # 211
40, Bd du Pont-d'Arve
CH-1015 Lausanne, CH-6900
Switzerland

Coralie Jaunin

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne) ( email )

Unil Dorigny, Batiment Internef
Lausanne, 1015
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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