Attention-Induced Trading and Returns: Evidence from Robinhood Users
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What they found
Using Robinhood's publicly available data on how many users held each stock (2018 to 2020), the authors identified 'herding events' in which the number of Robinhood holders of a stock jumped sharply. These events were driven by attention: they clustered in stocks with extreme returns and in stocks featured on the app's Top Movers list. Stocks that Robinhood users piled into experienced negative abnormal returns of about 5% over the following month, and the pattern was much stronger than for retail investors at other brokers. The app's design (simplified information, top-movers lists) appeared to amplify attention-driven buying.
What you can use
- When a stock's Robinhood holder count spikes, its return over the next month has been about 5% below normal.
- App features that highlight big movers steer users into crowded, poorly timed trades.
- Herding by retail is visible in public data and is a contrarian signal, not a confirmation signal.
Caveats
Robinhood stopped publishing holder data in 2020, so the sample is short and includes the pandemic period. Results are about aggregate herding events, not every Robinhood trade.
Tags: retail, robinhood, attention, herding
Summaries are our own reading of the paper, not the authors' words. Educational only, not advice. Discuss it in Book Club.