The Equity Market Implications of the Retail Investment Boom
Winner of the Swiss Finance Institute Best Paper Doctoral Award 2021
60 Pages Posted: 2 Feb 2021 Last revised: 6 Nov 2023
Date Written: January 30, 2021
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 small market share of 0.15%, 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 20% lower.
Keywords: Retail investors, Demand system, Institutional investors, COVID-19, Robinhood
JEL Classification: G11, G14, G12, G23
Suggested Citation: Suggested Citation