The Information Content of Retail Order Flow : Evidence from Fragmented Markets

We examine the information content of retail order flow relative to dark institutional and lit markets. We use multiple sources of retail order identification and account for the fact that market opacity affects order routing choices of both institutions and the brokers who sell retail orders. After controlling for volume effects, we find that retail flow is more informed than dark institutional. Price discovery on dark markets comes mostly from retail order flow. However, on days with more firm-specific news on Seeking Alpha and greater Robinhood activity, the information content of retail order flow drops. Our results reconcile some mixed findings in this literature