Market Ambiguity and Individual Investor Information Demand

Journal of Contemporary Accounting and Economics 2018 (14) pp.126-141.

40 Pages Posted: 15 May 2017 Last revised: 6 Aug 2018

See all articles by Rajib Hasan

Rajib Hasan

University of Houston, Clear Lake - School of Business

Abdullah Kumas

University of Richmond - Robins School of Business

Joyce van der Laan Smith

University of Richmond

Date Written: April 27, 2017

Abstract

The U.S. capital market is based on the efficient flow of information to all investors, not just the large, institutional investors that dominate today’s markets. Investigating the flow of information to uninformed market participants, we examine whether ambiguity in the market leads to an increase in information demand by individual investors. Basing our hypotheses on the asset pricing model proposed by Mele and Sangiorgi (2015), which incorporates market ambiguity, we measure individual information demand using daily Google searches and measure market ambiguity using a metric based on the market trades of institutional investors. We find that individual investors increase their information demand during periods of greater market ambiguity. In particular, our results show that for random trading days, when there is higher market uncertainty, individual investors demand more information. We also provide evidence that information demand from individual investors spikes around earnings announcement days primarily when market uncertainty is highest. We fail to find evidence of increased demand for information around earnings announcements when there is lower ambiguity, i.e., low disagreement among institutional investors. These results collectively indicate that information demand by uninformed investors is influenced by market uncertainty as measured by the differential trading patterns of informed investors. Finally, we provide evidence that institutional investor disagreement reflected in sell pressure leads to more information demand from individual investors. Overall, these results suggest that the disagreement among institutional investors either represents uncertainty or contributes to the uncertainty related to a stock, leading to increased demand for information from individual investors.

Keywords: Market Ambiguity, Uncertainty, Google Search Index, Institutional Investors

JEL Classification: M41

Suggested Citation

Hasan, Rajib and Kumas, Abdullah and van der Laan Smith, Joyce, Market Ambiguity and Individual Investor Information Demand (April 27, 2017). Journal of Contemporary Accounting and Economics 2018 (14) pp.126-141., Available at SSRN: https://ssrn.com/abstract=2967814 or http://dx.doi.org/10.2139/ssrn.2967814

Rajib Hasan

University of Houston, Clear Lake - School of Business ( email )

2700 Bay Area Blvd.
Houston, TX 77058
United States

Abdullah Kumas (Contact Author)

University of Richmond - Robins School of Business ( email )

28 westhampton way
Richmond, VA virginia 23173
United States

Joyce Van der Laan Smith

University of Richmond ( email )

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