37 Pages Posted: 27 Jan 2011 Last revised: 16 Mar 2011
Date Written: March 14, 2011
We study the effect of investor attention on stock returns over short horizons (less than a month). For each trading day, we construct portfolios of stocks from companies in the two smallest size quintiles that are likely to attract unusual attention from retail investors. These attention portfolios consist of stocks whose ticker symbols are similar to stocks of large companies in the news (proxied by extreme returns or high trade volumes) on the formation day. Subsequent to the formation, trade activity in attention stocks increases relative to the rest of the stocks in the same size quintile (baseline portfolio). Attention portfolios yield 0.95% -- 3.3% annualized excess return (relative to their corresponding baseline portfolios) in the three weeks following their formation. Our results survive controls for industry effects and are not driven by trading errors of investors confused over ticker symbols.
Keywords: investor attention, stock returns, trade activity, industry effects
JEL Classification: G12
Suggested Citation: Suggested Citation
Li, Xiaodi and Mahani, Reza S. and Sandhya, Vallapuzha, Does Investor Attention Affect Stock Prices? (March 14, 2011). Available at SSRN: https://ssrn.com/abstract=1748851 or http://dx.doi.org/10.2139/ssrn.1748851
By Yu Yuan