Daily Winners and Losers

Abstract

One of the most salient events for a stock is being a daily winner or loser: these stocks are highlighted prominently in the media, leading to investor attention spikes. We demonstrate that ranked stocks underperform unranked stocks by over 1.50% during the month after the ranking, in line with attention-induced overpricing. To establish causality, we introduce an identification strategy that exploits unconventional return-measurement periods. We show that the underperformance of daily winners and losers provides a new attention-based solution for the idiosyncratic volatility puzzle and related return patterns, and thus a simple unifying explanation for important asset pricing anomalies.

Keywords: Salient stock returns, investor attention, idiosyncratic volatility puzzle, retail investors.

JEL Classification: G11, G12, G14