Can Retail Investor Attention Enhance Market Efficiency? Insights from Search Engine Data
38 Pages Posted: 29 Jul 2015 Last revised: 4 Nov 2015
Date Written: November 3, 2015
This study provides novel insights to the ongoing debate how market efficiency is challenged by investor behavior. Applying search engine data we find that retail investor attention can enhance market efficiency. High attention is associated with better incorporation of idiosyncratic stock information, which we interpret as improved pricing efficiency. This effect is even more pronounced in bullish markets. In bearish markets, however, retail investor attention leads to a deterioration of pricing efficiency, which might be explained with herding behavior. Our evidence holds for a broad sample of European and US stocks.
Keywords: market efficiency, investor attention, search engine volume
JEL Classification: G02, G12, G14
Suggested Citation: Suggested Citation