Ranking and Salience

Abstract

We investigate the economic consequences of stock ranking using a novel natural experiment in which stock ranking is due to the rounding of stock prices. The results show that ranking a stock in a more salient place can increase its return volatility, trading volume, liquidity, and cause higher short-term stock returns and an eventual reversal. Ranking only matters when it affects investor attention. The ranking effect is stronger when more stocks are on the list. Further, small investors are more affected by ranking. Overall, the evidence shows that uninformed ranking can cause correlated investor trading and have significant economic consequences.

Keywords: ranking; investor attention; overreaction; volatility; volume

JEL Classification: G12, G14, D03