How Does Data Visualization Affect Retail Investor Information Processing and Trading?

Using three complementary research analyses centered on the Robinhood trading platform, which displays earnings visually, we provide convergent evidence that visualization facilitates retail investors' processing of and trading on earnings information. First, we document that Robinhood investors' trading around earnings announcements is more sensitive to visual earnings surprises than non-Robinhood retail and institutional investors. Second, a difference-indifferences analysis around Robinhood's 2017 introduction of visual earnings reveals increased trading sensitivity for high-Robinhood-ownership stocks. Third, a framed field experiment with retail investors confirms that visualization improves their ability to recall earnings surprise direction (i.e., their information processing). However, our archival analyses show that Robinhood investors trade asymmetrically. Net buying increases with the magnitude of negative visual earnings surprises but is not associated with the magnitude of positive surprises, a trading pattern that departs from a rational benchmark given the positive relationship between visual earnings surprises and future returns. Our findings demonstrate that visualization helps investors use earnings information to trade, but it does not correct the beliefs or preferences guiding how they use it.