Retail Investor Trade and the Pricing of Earnings

59 Pages Posted: 26 Apr 2021 Last revised: 11 May 2023

Date Written: May 11, 2023


Using the number of Robinhood users holding a firm’s shares, I examine how novice retail investors respond to earnings announcements and the implications of their responses for the price-earnings relation. I do not find evidence of informed trading among these investors. Changes in their holdings also do not resemble random, uncorrelated noise trading. Instead I find that the number of retail investors holding a firm’s shares increases in response to both more positive and more negative earnings news, consistent with attention-driven trade. An intraday analysis suggests these traders do not respond to announced earnings per se but instead to observed market returns. Consistent with this coordinated trading exerting pressure on prices, I find that stock returns drift upward following both the most positive and the most negative earnings surprises when increases in retail holdings are greatest and the firm is relatively small or costly to sell short.

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 (May 11, 2023). Jacobs Levy Equity Management Center for Quantitative Financial Research Paper , Available at SSRN: or

Jeremy Michels (Contact Author)

Purdue University ( email )

610 Purdue Mall
West Lafayette, IN 47907
United States

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