Retail Raw: Wisdom of the Robinhood Crowd and the COVID Crisis

Small retail investors at the Robinhood (RH) retail brokerage firm from 2018 to 2020 shared with Finnish and larger US investors from the 1990s a preference for extreme recent winners and losers. Interestingly, this preference held even for the overall stock market during the March-2020 Covid crisis, indicating an absence of panic and margin calls. Thus, RH investors acted as a (small) market-stabilizing force. They were also unusually interested in some “experience” stocks (e.g., Cannabis stocks). Nevertheless, the narrative of pure irrational exuberance is misleading. Collectively, RH investors bought and held stocks with large past share-volume and dollar-volume, making them invest overwhelmingly in large rather than in obscure stocks. A portfolio constructed on the basis of just these two variables can make it possible to mimick the investments of RH traders, plausibly even beyond the sample. The collective RH crowd portfolio also did not underperform with respect to standard academic benchmark models.