Investor Attention and Stock Market Volatility

49 Pages Posted: 5 Oct 2013 Last revised: 16 Sep 2017

See all articles by Daniel Andrei

Daniel Andrei

McGill University; Desautels Faculty of Management

Michael Hasler

University of Texas at Dallas, Naveen Jindal School of Management, Department of Finance

Date Written: June 3, 2013

Abstract

We investigate in a theoretical framework the joint role played by investors’ attention to news and learning uncertainty in determining asset prices. The model provides two main predictions. First, stock return variance and risk premia increase with both attention and uncertainty. Second, this increasing relationship is quadratic. We empirically test these two predictions, and we show that the data lend support to the increasing relationship. The evidence for a quadratic relationship is mixed. Overall, our study shows theoretically and empirically that both attention and uncertainty are key determinants of asset prices.

Keywords: Asset Pricing, General Equilibrium, Learning, Attention, Uncertainty, Volatility, Risk Premia

Suggested Citation

Andrei, Daniel and Hasler, Michael, Investor Attention and Stock Market Volatility (June 3, 2013). The Review of Financial Studies, 2015, Available at SSRN: https://ssrn.com/abstract=2336073 or http://dx.doi.org/10.2139/ssrn.2336073

Daniel Andrei

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada

Desautels Faculty of Management ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada

Michael Hasler (Contact Author)

University of Texas at Dallas, Naveen Jindal School of Management, Department of Finance ( email )

800 West Campbell
Richarson, TX 75080
United States

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