Investor Inattention and the Market Impact of Summary Statistics

Management Science, Forthcoming

29 Pages Posted: 27 Mar 2008 Last revised: 17 Sep 2011

See all articles by Shimon Kogan

Shimon Kogan

Massachusetts Institute of Technology (MIT) - Sloan School of Management; IDC Herzliya - Arison School of Business

Thomas Gilbert

University of Washington - Department of Finance and Business Economics

Lars A. Lochstoer

University of California, Los Angeles (UCLA) - Anderson School of Management

Ataman Ozyildirim

The Conference Board

Date Written: July 27, 2011

Abstract

In this paper we identify a unique series of recurring stale information releases and show that the aggregate markets respond to its release. The macroeconomic series -- the U.S. Index of Leading Economic Indicators (LEI) -- is released monthly and constructed as a summary statistic of previously released inputs. We show that a front-running strategy that trades S&P500 futures in the direction of the announcement a day before its release and then trades in the opposite direction of the announcement following its release generates an average annual return of close to 8%. These patterns are more pronounced for high beta stocks, for stocks that are more difficult to arbitrage, and during times when investors' sensitivity to firm-specific stale information is high. Treasury futures exhibit similar, albeit less pronounced, price patterns. Other measures of information arrival, such as price volatility and volume, spike following the release. These empirical findings suggest that some investors are inattentive to the stale nature of the information included in the LEI releases, instead interpreting it as new information, and thereby causing temporary yet significant mispricing.

Keywords: Limited attention, macroeconomic news, informational efficiency

JEL Classification: G14

Suggested Citation

Kogan, Shimon and Gilbert, Thomas and Lochstoer, Lars A. and Ozyildirim, Ataman, Investor Inattention and the Market Impact of Summary Statistics (July 27, 2011). Management Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1108050

Shimon Kogan (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

77 Massachusetts Ave. E62-663
Cambridge, MA 02142
United States

IDC Herzliya - Arison School of Business ( email )

P.O. Box 167
Herzliya, 46150
Israel

Thomas Gilbert

University of Washington - Department of Finance and Business Economics ( email )

Box 353200
Seattle, WA 98195
United States
206-616-7184 (Phone)

HOME PAGE: http://faculty.washington.edu/gilbertt/

Lars A. Lochstoer

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Ataman Ozyildirim

The Conference Board ( email )

845 Third Avenue
New York, NY 10022
United States

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