Shorting the most bought stocks at Robinhood

A

ajensen

Based on this current paper from the Journal of Finance (October 2020 working paper here), do you think it is possible to profitably short the most bought stocks at Robinhood? Of course position sizing is very important, since some of the stocks have skyrocketed before falling back to earth. I wonder if the effect is large enough that a limited risk strategy such as buying puts on most-bought stocks has worked.

Attention-Induced Trading and Returns: Evidence from Robinhood Users
ABSTRACT
We study the influence of financial innovation by fintech brokerages
on individual investors’ trading and stock prices. Using data from
Robinhood, we find that Robinhood investors engage in more
attention-induced trading than other retail investors. For example,
Robinhood outages disproportionately reduce trading in high-attention
stocks. While this evidence is consistent with Robinhood attracting
relatively inexperienced investors, we show that it is also driven in
part by the app's unique features. Consistent with models of
attention-induced trading, intense buying by Robinhood users forecasts
negative returns. Average 20-day abnormal returns are −4.7% for the
top stocks purchased each day.
 
There isn't enough history with Robinhood to mathematically answer this question in any meaningful way. So my answer is "no". But I'm sure we can discuss the hypothesis at length.
 
Guess it's doable but not blindly.
The most you can make is 100% if it goes to zero.
While WSB can push the stock 10X or more. It's a sucker bet.

Timing has to be to the point.
There are plenty of guys shorting pumps.
Obviously any pump is going to dump sometime.

There are known guys specialized in this kind of shorts.
Thinking about ... Sykes ? Nathan Michaud. Kristjan Kullamägi in a way.

https://twitter.com/x/status/1585004906879930368

These guys might be looking to short EPIX Rn
 
Last edited:
ajensen said:
Based on this current paper from the Journal of Finance (October 2020 working paper here), do you think it is possible to profitably short the most bought stocks at Robinhood? Of course position sizing is very important, since some of the stocks have skyrocketed before falling back to earth. I wonder if the effect is large enough that a limited risk strategy such as buying puts on most-bought stocks has worked.

Attention-Induced Trading and Returns: Evidence from Robinhood Users
ABSTRACT
We study the influence of financial innovation by fintech brokerages
on individual investors’ trading and stock prices. Using data from
Robinhood, we find that Robinhood investors engage in more
attention-induced trading than other retail investors. For example,
Robinhood outages disproportionately reduce trading in high-attention
stocks. While this evidence is consistent with Robinhood attracting
relatively inexperienced investors, we show that it is also driven in
part by the app's unique features. Consistent with models of
attention-induced trading, intense buying by Robinhood users forecasts
negative returns. Average 20-day abnormal returns are −4.7% for the
top stocks purchased each day.
More...

Which are the most bought stocks?
 
RH used to sell that - not certain if they still do or if a market for it exists.

Their router wholesaler would have it.
 
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