Feb

27

Attention Induced Trading and Returns: Evidence from Robinhood Users
Brad M. Barber, University of California, Davis
Xing Huang, Washington University in St. Louis - Olin Business School
Terrance Odean, University of California, Berkeley - Haas School of Business
Christopher Schwarz, University of California, Irvine - Finance Area
Date Written: October 12, 2021

We study the influence of financial innovation by fintech brokerages on individual investors’ trading and stock prices. Using data from Robinhood, we find that Robinhood investors engage in more attention-induced trading than other retail investors. For example, Robinhood outages disproportionately reduce trading in high-attention stocks. While this evidence is consistent with Robinhood attracting relatively inexperienced investors, we show that it can also be partially driven by the app’s unique features. Consistent with models of attention-induced trading, intense buying by Robinhood users forecast negative returns. Average 20-day abnormal returns are -4.7% for the top stocks purchased each day.


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