Something Weird Is Happening: Small Investors’ Robinhood Buying Bucks The IPO Trend

Something Weird Is Happening: Small Investors’ Robinhood Buying Bucks The IPO Trend
Andrew Rummer

over 2 years ago1 min

Retail investors generally plow into freshly listed shares on their first day of trading, before losing interest. When it comes to Robinhood’s market debut, they’re showing exactly the opposite behavior. 

As the chart above shows, smaller investors greeted the trading app’s initial public offering (IPO) last Thursday with a bit of a shrug. But while interest in IPOs tends to drop off rapidly in the days following the listing, purchases of Robinhood shares have soared. And you can see in the chart below from VandaTrack, both trading and net purchases of Robinhood shares jumped on Wednesday.

Chart of retail purchases of Robinhood shares

Explaining the muted retail demand for Robinhood in its first couple of days as a public company is fairly easy: because the company allowed so many small investors to buy stock directly as part of the IPO process it removed about $500 million of demand that might otherwise have flocked to the shares on day one. 

Explaining why retail might have suddenly snapped up the stock on its fourth and fifth days of trading is unfortunately much harder. Robinhood has undoubtedly been getting a lot of attention on Reddit, but whether that’s the cause of the price gain or its symptom is difficult to prove. 

Wednesday also saw the start of trading in options on the stock, which could have fueled weird price moves in the underlying shares. But there’s no obvious reason this would have a bigger effect on Robinhood than, say, Coinbase or other closely followed IPOs.

If Robinhood had surged 50% on its first day of trading, no one would have batted an eye. But jumping 50% on your fifth day of trading is just weird. Perhaps all that we can conclude from this story is that odd things sometimes happen to stocks with high levels of retail ownership… 

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