Attention Induced Trading and Returns: Evidence from Robinhood Users

Consistent with attention-induced trading models’ predictions, we link episodes of intense buying by retail investors at the brokerage firm Robinhood to negative returns. Average five-day abnormal returns are -3% (-6%) for the top stocks purchased each day (more extreme herding) by Robinhood users. We find that herding episodes are related to the simplified display of information on the Robinhood app and to established proxies for investor attention. These factors lead to more concentrated trading by Robinhood users that can impact pricing. For example, during Robinhood outages, retail investor volume drops significantly among stocks that are likely to capture investor attention.