Economic Uncertainty and Investor Attention

69 Pages Posted: 4 Mar 2018 Last revised: 6 Nov 2021

See all articles by Daniel Andrei

Daniel Andrei

McGill University; Desautels Faculty of Management

Henry L. Friedman

University of California, Los Angeles (UCLA) - Anderson School of Management

N. Bugra Ozel

University of Texas at Dallas; The Wharton School

Date Written: November 4, 2021

Abstract

This paper develops a multi-firm equilibrium model of information acquisition based on differences in firms’ characteristics. It is shown that higher market-level uncertainty attracts investor attention to firm-level earnings announcements. Increased investor attention magnifies the earnings response coefficients of all announcing firms. However, reactions to increased attention differ by firm characteristics (e.g., firms with higher systematic risk attract more investor attention and their prices react more to earnings announcements). In the model, heightened investor attention caused by high uncertainty implies a steeper CAPM relation. The implications of the model for the cross section of firms are tested using firm-level attention measures and stock returns around earnings announcements and using CAPM portfolio tests on high- versus low-uncertainty days

Keywords: Investor attention; Economic uncertainty; Earnings announcements; CAPM

JEL Classification: G14; G41; M41

Suggested Citation

Andrei, Daniel and Friedman, Henry L. and Ozel, N. Bugra, Economic Uncertainty and Investor Attention (November 4, 2021). Available at SSRN: https://ssrn.com/abstract=3128673 or http://dx.doi.org/10.2139/ssrn.3128673

Daniel Andrei

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada

Desautels Faculty of Management ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada

Henry L. Friedman (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

N. Bugra Ozel

University of Texas at Dallas ( email )

800 W Campbell Rd
Richardson, TX 75083-0688
United States

HOME PAGE: http://sites.google.com/view/bugraozel/home

The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

HOME PAGE: http://sites.google.com/view/bugraozel/home

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