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:	© 2025 The Author(s). Journal of Business Finance & Accounting published by John Wiley & Sons Ltd. This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.
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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