Can Retail Investor Attention Enhance Market Efficiency? Insights from Search Engine Data

38 Pages Posted: 29 Jul 2015 Last revised: 4 Nov 2015

See all articles by Konstantin Storms

Konstantin Storms

WHU - Otto Beisheim School of Management

Julia Kapraun

Goethe University Frankfurt - House of Finance

Markus Rudolf

WHU Otto Beisheim Graduate School of Management

Date Written: November 3, 2015

Abstract

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

Storms, Konstantin and Kapraun, Julia and Rudolf, Markus, Can Retail Investor Attention Enhance Market Efficiency? Insights from Search Engine Data (November 3, 2015). Available at SSRN: https://ssrn.com/abstract=2636839 or http://dx.doi.org/10.2139/ssrn.2636839

Konstantin Storms (Contact Author)

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

HOME PAGE: http://www.whu.edu

Julia Kapraun

Goethe University Frankfurt - House of Finance ( email )

Theodor-W.-Adorno Platz 3
Frankfurt am Main, 60323
Germany

Markus Rudolf

WHU Otto Beisheim Graduate School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany
+49-(0)261-6509-420 (Phone)

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