Retail Investor Trade and the Pricing of Earnings

46 Pages Posted: 26 Apr 2021 Last revised: 14 Aug 2021

See all articles by Jeremy Michels

Jeremy Michels

University of Pennsylvania - Accounting Department

Date Written: August 13, 2021


New technologies have reduced trading costs for retail investors. In this paper, I examine how the corresponding surge in retail investor trade is associated with the pricing of earnings. I measure retail investor trade with the number of Robinhood users holding a firm’s shares. I find increases in these relatively inexperienced investors are associated with a more positive market response to both positive and negative earnings surprises. This manifests in a more pronounced overall market response per unit of earnings surprise for positive earnings surprises but a muted market response for negative earnings surprises. Further intraday analysis suggests that retail investors respond to stock returns following the earnings announcement instead of the earnings news itself. Finally, in smaller firms and firms that are costly to sell short, and for both the most positive and negative earnings surprises, returns drift upward following the earnings announcement when retail trade is high.

Keywords: Retail investor, individual investor, Robinhood, earnings announcement, post-earnings-announcement drift

JEL Classification: G10, G11, G12, G14, G24, G41, G50, M41, O33

Suggested Citation

Michels, Jeremy, Retail Investor Trade and the Pricing of Earnings (August 13, 2021). Jacobs Levy Equity Management Center for Quantitative Financial Research Paper , Available at SSRN: or

Jeremy Michels (Contact Author)

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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