Attention Effects in a High-Frequency World
64 Pages Posted: 25 Jul 2015 Last revised: 11 Apr 2019
Date Written: April 9, 2019
We examine how limited attention affects stock prices in today’s computer-driven markets. Using multiple proxies of attention constraints and a dataset that identifies trades by high-frequency traders (HFTs) versus non-high-frequency traders, we find that price inefficiencies are reduced by 65% to 100% when HFTs trade following low-attention earnings announcements: Initial price responses are larger and post-earnings-announcement drift is reduced. Our results are not driven by firm size or announcement time-of-day patterns. Instrumental variable analysis and two event studies suggest that HFTs causally reduce low-attention effects. These results highlight the changing role of limited attention in asset pricing.
Keywords: Limited attention, price efficiency, earnings announcements, high-frequency trading,
JEL Classification: G02, G10, G14, M40, M41
Suggested Citation: Suggested Citation