The Wisdom of the Robinhood Crowd
Read the paperopens doi.org in a new tab
What they found
A more sympathetic reading of the same Robinhood holdings data. Welch constructed the aggregate portfolio implied by Robinhood users' holdings from 2018 to 2020 and found that it did not underperform: the crowd's portfolio earned returns comparable to or slightly better than the market, partly because Robinhood users bought during the March 2020 crash when institutions were selling. He also found the aggregate holdings tilted toward stocks that were later favored by other investors, which he interprets as evidence of some collective information, though the individual trades were noisy.
What you can use
- In aggregate, the Robinhood crowd's portfolio held up: it was not the disaster popular narratives assumed.
- Retail buying during the 2020 crash was well timed, a reminder that 'retail is always wrong' is an overstatement.
- The crowd's aggregate portfolio and individual traders' outcomes are different things; a decent aggregate hides many bad individual trades.
Caveats
Same short 2018 to 2020 sample with a single dramatic crash; results are sensitive to that episode. Uses holdings counts, not actual returns of individual accounts. A free NBER version exists.
Tags: retail, robinhood, crowd, aggregate
Summaries are our own reading of the paper, not the authors' words. Educational only, not advice. Discuss it in Book Club.