City Research Online

Abstract

How sophisticated are retail investors in monitoring their holdings? We answer this question by examining Robinhood investors’ trades around the U.S. Securities and Exchange Commission (SEC) comment letter (CL) disclosures. We focus on CLs since, compared to periodic filings, CL disclosures are unscheduled (high search cost) and unstandardized with a significant variation in their content (high processing cost). We find that CLs attract Robinhood investors’ attention, as evidenced by a significant abnormal Google search volume around CLs disclosure, particularly around more severe CLs. The number of Robinhood investors holding a stock reduces after a firm receives more severe CLs in anticipation of the future decline in stock prices. Our results are (i) robust to addressing the endogeneity concern, (ii) robust to controlling for concurrent information from insider sales, short-selling activity, Twitter, press, analysts, and other concurrent CLs, and (iii) do not reflect Robinhood investors relying on heuristics in analyzing CLs’ content. Our evidence suggests that retail investors are sophisticated in processing CL disclosures as part of their portfolio monitoring activities.

Publication Type:	Article
Additional Information:	This is the peer reviewed version of the following article: Brownen-Trinh, R., Cho, J. J. & Bilinski, P. (2025). Retail Investors’ Trades around Comment Letter Disclosures. Journal of Business Finance & Accounting, which will be published in final form at onlinelibrary.wiley.com/journal/14685957. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. This article may not be enhanced, enriched or otherwise transformed into a derivative work, without express permission from Wiley or by statutory rights under applicable legislation. Copyright notices must not be removed, obscured or modified. The article must be linked to Wiley’s version of record on Wiley Online Library and any embedding, framing or otherwise making available the article or pages thereof by third parties from platforms, services and websites other than Wiley Online Library must be prohibited.
Publisher Keywords:	Retail Investors; Robinhood Investors; SEC Comment Letter
Subjects:	H Social Sciences > HG Finance
Departments:	Bayes Business School Bayes Business School > Finance
SWORD Depositor:	Symplectic Administrator

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