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The impact of Robinhood traders on the volatility of cross-listed securities

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  • Aharon, David Y.
  • Baig, Ahmed S.
  • Delisle, R. Jared

Abstract

This study investigates the impact of Robinhood investors' participation on the volatility of American depository receipts (ADRs). Using data on Robinhood account holdings in 382 ADRs from 33 countries around the globe, we show that their activity amplifies the cross-listed securities volatility. While Robinhood investors' involvement has soared in recent years, seemingly supplying additional trading liquidity, this provision appears to be associated with a deterioration of ADR stability. The detrimental effect holds across the COVID-19 period and is not subsumed by home-country pandemic intensity measures. Since the law of one price suggests that increased ADR volatility will negatively impact the underlying stocks in their home markets, our results have important implications for various government and market policy makers as well as for home-country firms considering cross-listing their stocks.

Suggested Citation

  • Aharon, David Y. & Baig, Ahmed S. & Delisle, R. Jared, 2022. "The impact of Robinhood traders on the volatility of cross-listed securities," Research in International Business and Finance, Elsevier, vol. 60(C).
    • Handle: RePEc:eee:riibaf:v:60:y:2022:i:c:s0275531922000071
    DOI: 10.1016/j.ribaf.2022.101619
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    Cited by:

    1. Clancey-Shang, Danjue, 2023. "COVID lockdown, Robinhood traders, and liquidity in stock and option markets," International Review of Financial Analysis, Elsevier, vol. 90(C).
    2. Aharon, David Y. & Kizys, Renatas & Umar, Zaghum & Zaremba, Adam, 2023. "Did David win a battle or the war against Goliath? Dynamic return and volatility connectedness between the GameStop stock and the high short interest indices," Research in International Business and Finance, Elsevier, vol. 64(C).
    3. Nobanee, Haitham & Ellili, Nejla Ould Daoud, 2023. "What do we know about meme stocks? A bibliometric and systematic review, current streams, developments, and directions for future research," International Review of Economics & Finance, Elsevier, vol. 85(C), pages 589-602.
    4. Aharon, David Y. & Baig, Ahmed S. & Jacoby, Gady & Wu, Zhenyu, 2024. "Greenhouse gas emissions and the stability of equity markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 92(C).
    5. David Ardia & Cl'ement Aymard & Tolga Cenesizoglu, 2023. "Fast and Furious: A High-Frequency Analysis of Robinhood Users' Trading Behavior," Papers 2307.11012, arXiv.org.

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    More about this item

    Keywords

    ADR; American depository receipts; Volatility; Retail Investors; Commission free trading; Robinhood;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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