Information, Trade, and Salient Returns
128 Pages Posted: 14 Mar 2017 Last revised: 27 May 2020
Date Written: September 22, 2017
We show that a substantial part of information acquisition and trading in stock markets is driven directly by salient returns, above and beyond the effects of underlying causes of returns. To establish causality, we first analyze overnight earnings announcements. Larger surprises lead to more information acquisition only after the market opens, consistent with salient returns as a cause. Second, we exploit Wall Street Journal rankings to show that prominently placed salient returns drive information acquisition and trading. Finally, we document that stocks experiencing salient returns are particularly mispriced, in line with return-induced uninformed trading as a major moderator of anomalies.
Keywords: Salience, information placement, returns, information acquisition, trading activity, mispricing
JEL Classification: G12, G14
Suggested Citation: Suggested Citation