Retail Traders and Co-Movement Evidence from Robinhood Trading Activity
We investigate the role of retail traders in comovement in return and liquidity. We use the Robinhood data to compute a proxy of retail trading activity. Our results show that retail trading activity is associated with a decrease in both comovements in return and liquidity. The effects on comovement in return are mediated through correlated trades and a delay in incorporating market-wide information. The effects on comovement in liquidity are mediated through correlated trades, with evidence for the role of non-homogeneity in trading strategies