The bank combed through data going back to May 2018 published by Robinhood that shows the most popular stocks on its platform. The data, which is often analyzed by third-parties who want a glimpse into the psyche of the retail investor, does not include transaction dates or dollar amounts.
“We find that stocks with increasing popularity with Robinhood users outperform those with decreasing popularity in the next one week and one month,” wrote a team led by Peng Cheng, head of machine learning at the firm's investment bank. “For longer horizons, the evidence is inconclusive.”
Investors on Robinhood gravitate toward stocks that are grabbing headlines, seeing outsized one-day returns and a spike in trading volume, the JPMorgan study found. Interest from retail traders, which is a “continuation signal” in the near-term has a greater impact on the performance of small- and mid-cap stocks than large-cap names.
The results are consistent with a 2009 study conducted by University of California researchers Brad Barber, Terrance Odean and Ning Zhu, who also found that the retail investor is a contrarian sell signal over the long term.
JPMorgan’s analysis also found that stocks on Robinhood’s list experience a surge in options trading, specifically in short-dated calls, or the right to buy a stock at a given price by a specified date.
Unfortunately for traders, Robinhood earlier this week announced it would stop sharing its data on which stocks were most popular among its users, wanting to shed the stigma that its app is mostly used by day-traders.
“At Robinhood, we’re committed to enabling people to participate in the markets through responsible investing,” a company spokesperson said.