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.
  • Visit Business Insider's homepage for more stories.

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).

Read more: Morgan Stanley breaks down 4 reasons why the next stock bull market is just getting underway — and lays out the best investing strategy for taking advantage

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.

Partner offer: Want to start investing? Try commission-free trading with TD Ameritrade »

Disclosure: TD Ameritrade is a partner of Insider, Inc.’s business development team, which is separate from its editorial department. We may receive a commission if you open an account.

“UK

Source: Read Full Article