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How did retail investors respond to the COVID-19 pandemic? The effect of Robinhood brokerage customers on market quality

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  • Pagano, Michael S.
  • Sedunov, John
  • Velthuis, Raisa

Abstract

Using data on stocks held by individual investors at retail brokerage firm Robinhood, we document that these investors are actively engaged in both momentum and contrarian trading strategies. In response to the increased volatility and uncertainty in financial markets due to the COVID-19 pandemic in March 2020, we find that retail investors reduce momentum trading and increase contrarian trading activity during the initial phase of this crisis. We also find that the impact of Robinhood investors on several measures of market quality varied depending on market conditions, coinciding with better market quality during less-stressful periods and worse market quality during the early weeks of the pandemic in the U.S.

Suggested Citation

  • Pagano, Michael S. & Sedunov, John & Velthuis, Raisa, 2021. "How did retail investors respond to the COVID-19 pandemic? The effect of Robinhood brokerage customers on market quality," Finance Research Letters, Elsevier, vol. 43(C).
    • Handle: RePEc:eee:finlet:v:43:y:2021:i:c:s1544612321000271
    DOI: 10.1016/j.frl.2021.101946
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    References listed on IDEAS

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    More about this item

    Keywords

    COVID-19 pandemic; Financial markets; Individual investors; Retail trading; Herding; Robinhood; Robintrack;
    All these keywords.

    JEL classification:

    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • G01 - Financial Economics - - General - - - Financial Crises
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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