This Time is Different: Investing in the Age of Robinhood

Abstract

This paper studies the investing behavior and asset pricing implications of the new class
of retail traders exemplified by the relatively young, small, and inexperienced individual
investors on the Robinhood platform. I first document an absence of investing in lottery
stocks, value stocks, and small-cap stocks, in contrast to prior literature, and show that
these differences arise from a combination of investor behavior and market design changes
such as the introduction of fractional share trading. I then identify three key drivers of
Robinhood investment: a novel “buy-the-dip” effect, event-based trading in response to
earnings announcements and analyst recommendation revisions, and trading connected
to popularity and sentiment on the WallStreetBets platform. I develop a model to shed
light on the buy-the-dip phenomenon and introduce a novel financial dictionary based
on WallStreetBets sentiment. Finally, I analyze performance and show that Robinhood
investment predicts returns and improves price discovery up to a one month horizon.

Keywords: Robinhood, WallStreetBets, retail trading, portfolio choice, investments, buy-the-dip effect, price discovery, FinTech

JEL Classification: G11, G12, G14, G40, G41