Information, Trade, and Salient Returns

128 Pages Posted: 14 Mar 2017 Last revised: 27 May 2020

See all articles by Fabian Brunner

Fabian Brunner

University of Mannheim - Department of Finance and GESS

Michael Ungeheuer

Aalto University

Date Written: September 22, 2017

Abstract

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

Brunner, Fabian and Ungeheuer, Michael, Information, Trade, and Salient Returns (September 22, 2017). Available at SSRN: https://ssrn.com/abstract=2931547 or http://dx.doi.org/10.2139/ssrn.2931547

Fabian Brunner

University of Mannheim - Department of Finance and GESS ( email )

L9, 1-2
Mannheim, 68161
Germany

Michael Ungeheuer (Contact Author)

Aalto University ( email )

P.O.Box 21210
Aalto, 00076
Finland

HOME PAGE: http://sites.google.com/site/ungeheuermichael/

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