How do brokerages’ digital engagement practices affect retail investor information processing and trading?

I examine how retail brokerages’ digital engagement practices (i.e., push notifications and data visualization) impact retail investor information processing and trading. In my first chapter, I investigate how retail brokerages’ push notifications impact retail investor trading. My research design utilizes that Robinhood automatically sends push notifications to its customers when the intraday return of a stock in their portfolio reaches +/- 5%. I document that push notifications significantly increase retail investor trading by at least 25%. Notably, I also find that retail investor trading better predicts future returns following positive push notifications and predicts future returns equally well following negative push notifications.

In my second chapter, I investigate how the visual display of earnings information impacts retail investor information processing. My research design exploits a shock to the attention paid to information displayed on Robinhood caused by push notifications. I find that retail investors incorporate visual earnings information in their trades. After positive push notifications, retail investors use earnings to identify and purchase stocks with higher risk-adjusted returns. In contrast, after negative push notifications, retail investors use earnings to identify and purchase stocks with lottery-like returns. My results are consistent with retail investors using visualized earnings to inform themselves about different future return characteristics (e.g., risk-adjusted returns, lottery-like returns, etc.) depending on their current risk preferences.

Overall, my results generally contrast with the popular narrative that digital engagement practices exist only to increase uninformed retail trade. Retail investors seem to benefit from push notifications and data visualization.