Attentional Bias on the Robinhood Platform Causes Herding by “Naive” Investors That Hedge Funds can Short.

Interesting read:

Herding by ‘Naive’ Robinhood Traders May Be Good Signal to Short
finance.yahoo.com/news/herding-naive-robinhood-traders-may-153448816.html

“Users of the millennial-friendly app — the first to offer commission-free trading — are more likely to chase popular stocks with extreme performance. The result is herding that ultimately becomes a drag on those companies’ returns, according to the latest academic research into retail investing.

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When Robinhood users pile into a stock in large numbers, the average excess return on the day surges to 14%. But this is followed by a reversal of nearly 5% over the subsequent month, a new paper found.

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The thinking is that in seeking to make investing easier, the platform’s slimmed-down interface could be resulting in concentrated trading in the most “attention grabbing” shares. That increases the chance of herding which can lead to big market reversals.”

 

 

h/t  risk_parity