The most popular Robinhood stocks outperform their less-traded peers, according to a new JPMorgan study
- As Robinhood traders pile into certain stocks, they help boost performance over the next one week and one month relative to stocks with decreasing popularity, according to a study conducted by JPMorgan.
- Individual investor interest in a particular stock "is a continuation signal," according to the bank, adding that Robinhood traders tend to be attracted to stocks in the news that are exhibiting a surge in trading volume.
- But for longer time horizons more than a month out, the data of whether popular Robinhood stocks outperform their less-popular peers is inconclusive, JPMorgan found.
- Additionally, Robinhood traders' impact on stocks is more pronounced for small- and mid-cap stocks than it is for large-cap stocks, according to the note.
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Do Robinhood traders move the market in the stocks that they buy?
That's the main question JPMorgan set out to answer in a research study that used data from Robintrack.net, which tracks the number of Robinhood accounts that own, buy, or sell a particular stock.
The note, published on Wednesday, showed that as stocks increase in popularity among Robinhood investors, the returns of those stocks outperform their less-popular peers on a one-week and one-month basis.
"Stocks with increasing Robinhood user holdings tend to outperform those with decreasing holdings over the
next week/month," JPMorgan said.
Looking out on a one-year basis, JPMorgan was unable to conclude that stocks experiencing increasing popularity among Robinhood users outperformed their less popular peers due to the short history of data available (~2 years).
Stocks that experience a bigger impact from a surge in Robinhood account ownership popularity are small- and mid-cap companies rather than large-cap companies, JPMorgan found, as the firm excluded S&P 500 companies for one leg of its analysis and identified the contrast between small-, mid-, and large-cap companies.
Additionally, JPMorgan concluded that Robinhood traders are more attracted to "attention-grabbing stocks" that are in the news and experiencing a surge in volume.
The results of JPMorgan's study reinforces previous studies on retail traders' impact on the market, even though the data sets are completely different, which "demonstrates the long-term persistence in individual trader behavior," JPMorgan observed.
And when it comes to options, the study found that stocks experiencing a surge in popularity also see demand increase for call options relative to put options.
While the data publicized by Robinhood has been a boon for Wall Street firms looking to profit off of retail trading activity, Robinhood said on Friday that it would be pulling the data shortly and no longer publicizing it.