Retail Investor Trade and the Pricing of Earnings

47 Pages Posted: 26 Apr 2021 Last revised: 28 Mar 2022

See all articles by Jeremy Michels

Jeremy Michels

University of Pennsylvania - The Wharton School

Date Written: March 22, 2022


New technologies have reduced trading costs for retail investors. In this paper, I examine how the corresponding surge in retail investor trade, measured using the number of Robinhood users holding a firm’s shares, is associated with the pricing of earnings. I do not find evidence of informed trade among these investors, as increased holdings pre-earnings announcement predict more negative earnings news. At the earnings announcement, I find that retail investors increase holdings in response to both more positive and more negative earnings news, consistent with attention-driven trade. This manifests in a more pronounced overall market response per unit of earnings surprise, a result driven by positive earnings surprises. 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 (March 22, 2022). Jacobs Levy Equity Management Center for Quantitative Financial Research Paper , Available at SSRN: or

Jeremy Michels (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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