The information content of retail order flow: Evidence from fragmented markets

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