Active attention, retail investor base, and stock returns

Abstract

The vast investor attention literature assumes that active retail investor attention drives retail investor base and therefore, stock demand and stock returns. We aim to provide empirical support for these critical assumptions that are heavily relied upon in the literature. Utilizing Robinhood investor data to measure retail investor base and the Google Search Volume Index for stock tickers to measure active retail investor attention, we find that active retail investor attention and increases in active retail investor attention are associated with a larger retail investor base, which is positively related to demand for stocks and stock returns in the subsequent four weeks. We find these effects are impacted by recent stock returns and are economically more significant for larger stocks.