This Time is Different: Investing Preferences in the Age of Robinhood

Abstract

In this paper, I study how investing preferences of the relatively young, small, inexperienced, and well-connected individual investors on the Robinhood platform contrast with those of previously-studied individual investors. I find that unlike their predecessors, Robinhood investors do not have a preference towards investing in lottery stocks, value stocks, or small cap stocks. Instead, I find that Robinhood investments can best be explained by three main components: (i) attention-induced trading in response to extreme returns, volume traded, earnings announcement surprises, and analyst rating changes; (ii) a novel "buy-the-dip" effect favoring large, well-known companies that fell upon hard times; and (iii) high popularity and bullish sentiment on the WallStreetBets platform. Finally, I also document Robinhood representative portfolio outperformance relative to the CAPM, 3 factor, 4 factor, and 6 factor models and provide a novel financial forum dictionary based on WallStreetBets sentiment to be used in future research.

Keywords: Portfolio Choice, Investment Decisions, Retail Traders, Financial Literacy, Attention-Induced Trading, Robinhood, WallStreetBets, FinTech

JEL Classification: G11, G12, G14, G40, G41, G53