Market-Wide Attention, Trading, and Stock Returns
Shanghai Advanced Institute of Finance; University of Pennsylvania - Wharton Financial Institutions Center
September 1, 2012
Market-wide attention-grabbing events -- record levels for the Dow and front-page articles about the stock market -- predict the trading behavior of investors and, in turn, market returns. Both aggregate and household-level data reveal that high market-wide attention events lead investors to sell their stock holdings dramatically when the level of the stock market is high. Such aggressive selling has a negative impact on market prices, reducing market returns by 19 basis points on days following attention-grabbing events. The evidence supports the hypothesis that these trading and price effects reflect the behavior of attention-constrained investors who are subject to the disposition effect.
Number of Pages in PDF File: 48
Keywords: Attention, Individual investor, Trading
JEL Classification: G14working papers series
Date posted: March 17, 2008 ; Last revised: September 19, 2012
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