This Time is Different: Investing in the Age of Robinhood
Abstract
This paper studies the investing behavior and asset pricing implications of the new classof retail traders exemplified by the relatively young, small, and inexperienced individualinvestors on the Robinhood platform. I first document an absence of investing in lotterystocks, value stocks, and small-cap stocks, in contrast to prior literature, and show thatthese differences arise from a combination of investor behavior and market design changessuch as the introduction of fractional share trading. I then identify three key drivers ofRobinhood investment: a novel “buy-the-dip” effect, event-based trading in response toearnings announcements and analyst recommendation revisions, and trading connectedto popularity and sentiment on the WallStreetBets platform. I develop a model to shedlight on the buy-the-dip phenomenon and introduce a novel financial dictionary basedon WallStreetBets sentiment. Finally, I analyze performance and show that Robinhoodinvestment predicts returns and improves price discovery up to a one month horizon.