Attention Effects in a High-Frequency World

64 Pages Posted: 25 Jul 2015 Last revised: 11 Apr 2019

See all articles by Bidisha Chakrabarty

Bidisha Chakrabarty

Saint Louis University - Richard A. Chaifetz School of Business

Pamela C. Moulton

Cornell University - SC Johnson College of Business

Xu (Frank) Wang

Saint Louis University - Chaifetz School of Business

Date Written: April 9, 2019

Abstract

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

Chakrabarty, Bidisha and Moulton, Pamela C. and Wang, Xu (Frank), Attention Effects in a High-Frequency World (April 9, 2019). Available at SSRN: https://ssrn.com/abstract=2634621 or http://dx.doi.org/10.2139/ssrn.2634621

Bidisha Chakrabarty

Saint Louis University - Richard A. Chaifetz School of Business ( email )

3674 Lindell Blvd
St. Louis, MO MO 63108-3397
United States
3149773607 (Phone)
3149771479 (Fax)

HOME PAGE: http://business.slu.edu/departments/finance/faculty-staff/bidisha-chakrabarty

Pamela C. Moulton (Contact Author)

Cornell University - SC Johnson College of Business ( email )

Ithaca, NY 14853
United States

Xu (Frank) Wang

Saint Louis University - Chaifetz School of Business ( email )

3674 Lindell Blvd
St. Louis, MO 63108-3397
United States

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