Retail Trading around Earnings Announcements: Evidence from Robinhood Traders

Abstract

We document that retail investors from the discount broker Robinhood swarm into stocks with pending earnings announcements and stay away from them immediately after the announcements. We study four competing explanations for this phenomenon: liquidity provision, informed trading, lottery preference, and herding by noise traders. We find strong evidence that, immediately around earnings announcements, Robinhood investors’ behavior is primarily driven by attention-induced noise trading. Our results offer new insights into retail traders’ motivation for trading when they face heightened uncertainty from earnings announcements.

Keywords: Retail Investors, Earnings Announcements, Investor Attention, Lottery Preference, Informed Trading, Liquidity Provision

JEL Classification: G02, G11, G12