Wisdom of Crowds: The Value of Stock Opinions Transmitted through Social Media

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 can also be partially driven by the app’s unique features. Consistent with models of attention-induced trading, intense buying by Robinhood users forecast negative returns. Average 20-day abnormal returns are -4.7% for the top stocks purchased each day.

Attention Induced Trading and Returns: Evidence from Robinhood Users

I present closed-form solutions for prices, portfolios, and beliefs in a model where four types of investors trade assets over time: naive investors who learn via a social network, ``fanatics'' possibly spreading fake news, and rational short- and long-term investors. I show that fanatic and rational views dominate over time, and their relative importance depends on their following by influencers. Securities markets exhibit social network spillovers, large effects of influencers and thought leaders, bubbles, bursts of high volume, price momentum, fundamental momentum, and reversal. The model sheds new light on the GameStop event, historical bubbles, and asset markets more generally.

Game On: Social Networks and Markets

This paper studies the impact of retail investors on stock liquidity during the Coronavirus pandemic lockdown in Spring 2020. Retail trading exhibits a sharp increase, especially among stocks with high COVID-19-related media coverage. Retail trading attenuated the rise in illiquidity by roughly 40%, but less so for high-media-attention stocks. Causality is addressed utilizing the staggered implementation of stay-at-home advisory across US states. The results highlight that access to financial markets facilitated by fintech innovations to trading platforms, along with ample free time, are significant determinants of retail-investor stock-market participation. © 2021 Cambridge University Press. All rights reserved.

Flattening the Illiquidity Curve: Retail Trading during the COVID-19 Lockdown

Robinhood (RH) investors collectively increased their holdings in the March 2020 COVID bear market, indicating an absence of panic and margin calls. Their steadfastness was rewarded in the subsequent bull market. Despite unusual interest in some “experience” stocks, their aggregated consensus portfolio (likely mimicking the household-equal-weighted portfolio) primarily tilted towards stocks with high past share volume and dollar-trading volume. These were mostly big stocks. Both their timing and their consensus portfolio performed well from mid-2018 to mid-2020.

The Wisdom of the Robinhood Crowd

We study brokerage platform outages to examine how heterogeneity in retail investor sophistication influences their impact on financial markets. We contrast outages at Robinhood, which caters to inexperienced investors, with outages at more traditional retail brokers. Exogenous negative shocks to Robinhood (traditional broker) participation are associated with reduced (increased) market order imbalances, consistent with unsophisticated investors being more likely to herd. Robinhood (traditional broker) outages are associated with increased (decreased) market liquidity and lower (higher) return volatility. The findings are consistent with inexperienced retail investors creating inventory risks that harm liquidity, whereas other retail trading improves market quality.

Retail Trader Sophistication and Stock Market Quality: Evidence from Brokerage Outages

Over the last decade, the volume of market-on-close orders has increased to more than 10% of the entire day's trading volume. This paper investigates this rise and documents four stylized facts: (i) passive investing leads to greater usage of market-on-close orders, consistent with passive fund’s motivation for minimizing tracking error; (ii) the price impact from large market-on-close order imbalances is economically large and transitory, leading to short-term price reversal; (iii) a long/short trading strategy exploiting this reversal results in a significant risk-adjusted return of 13.2 basis points per day, consistent with the hypothesis that investors are compensated by providing liquidity to passive funds; and (iv) informed traders also use market-on-close orders, consistent with Admati and Pfleiderer's (1988) prediction that liquidity trades attract informed trades. Overall, the set of findings demonstrates market-on-close order as an important trading channel through which passive investing affects underlying stocks.

Closing Auction, Passive Investing, and Stock Prices

Closing auctions: Nasdaq versus NYSE


Purpose
The purpose of this paper is to incorporate Chinese traditionality (CT) and patriotism (PAT) within the theory of reasoned action (TRA). It tests the moderating effect of gender with the aim to provide a deeper understanding of why Chinese tourists choose to take domestic travels.


Design/methodology/approach
Data is collected from 370 Chinese tourists. Convenience sampling is used. Structural equation modelling is used to test the proposed hypotheses.


Findings
The results of this paper show that PAT is positively related to tourists’ attitudes (ATs) and Chinese domestic travel intention (CTI). Moreover, CT is found to influence PAT, ATs and subjective norms (SNs) directly, as well as CTI indirectly. However, the positive relationship between PAT and SNs is not supported. Additionally, the influence of PAT on CTI for females is significantly higher than that for males.


Research limitations/implications
The current paper adopts convenience sampling; data is collected using an online questionnaire which may cause sample bias and even reduce the reliability of the data. Future studies may adopt quota sampling based on the population of each province to gain more reliable data. Further research can consider including more constructs to better understand why Chinese people choose to travel domestically.


Originality/value
This paper is one of the first attempts to include PAT and CT within the TRA and contributes to the pool of literature on the TRA. It provides a comprehensive understanding of CTI. Second, PAT and CT are linked to the TRA, which expands the application of PAT and CT to the context of hospitality and tourism. Finally, the moderating role of gender contributes to the knowledge regarding the moderating effect between their respective relationships.


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Yanbin Wu

Papers

Retail Trader Sophistication and Stock Market Quality: Evidence from Brokerage Outages

Closing Auction, Passive Investing, and Stock Prices

Closing auctions: Nasdaq versus NYSE

The moderation of gender in the effects of Chinese traditionality and patriotism on Chinese domestic travel intention

Trade-revealed Subjective Expectations of Returns: Actions Speak Louder Than Words