Resolving a Paradox: Retail Trades Positively Predict Returns but Are Not Profitable

Journal of Financial and Quantitative Analysis · 2023 · 49 citations

• Business
• Monetary economics
• Economics

Abstract Retail order imbalance positively predicts returns, but on average retail investor trades lose money. Why? Order imbalance tests equal-weighted stocks, but retail purchases concentrate on attention-grabbing stocks that subsequently underperform. Long–short strategies based on extreme quintiles of retail order imbalance earn dismal annualized returns of −14.8% among stocks with heavy retail trading but earn 6.6% among other stocks. Our results reconcile the literatures on the performance of retail investors, the predictive content of retail order imbalance, and attention-induced trading and returns. Smaller retail trades concentrate more on attention-grabbing stocks and perform worse.

A (Sub)penny For Your Thoughts: Tracking Retail Investor Activity in TAQ

SSRN Electronic Journal · 2022 · 87 citations

• Business
• Psychology

Attention‐Induced Trading and Returns: Evidence from Robinhood Users

The Journal of Finance · 2022 · 482 citations

• Business
• Monetary economics
• Financial economics

ABSTRACT 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 is also driven in part by the app's unique features. Consistent with models of attention‐induced trading, intense buying by Robinhood users forecasts negative returns. Average 20‐day abnormal returns are −4.7% for the top stocks purchased each day.

What Explains Differences in Finance Research Productivity during the Pandemic?

The Journal of Finance · 2021 · 93 citations

• Sociology
• Demographic economics
• Psychology

ABSTRACT Based on a survey of American Finance Association members, we analyze how demographics, time allocation, production mechanisms, and institutional factors affect research production during the pandemic. Consistent with the literature, research productivity falls more for women and faculty with young children. Independently, and novel, extra time spent on teaching (much more likely for women) negatively affects research productivity. Also novel, concerns about feedback, isolation, and health have large negative research effects, which disproportionately affect junior faculty and PhD students. Finally, faculty who express greater concerns about employers’ finances report larger negative research effects and more concerns about feedback, isolation, and health.

Impact investing

Journal of Financial Economics · 2020 · 631 citations

• Finance
• Economics
• Business