Economic Uncertainty and Investor Attention
48 Pages Posted: 4 Mar 2018 Last revised: 28 Dec 2020
Date Written: December 26, 2020
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 crowds-in investor attention to firm-level earnings announcements. Increased investor attention magnifies the earnings response coefficients of all announcing firms, but stock prices react differently to the increase in attention (e.g., firms with higher systematic risk attract more investor attention and their prices react more to earnings announcements). The implications of the model for the cross section of firms are tested using data on firm-level attention and return measures around earnings announcements.
Keywords: Investor attention; Economic uncertainty; Earnings announcements
JEL Classification: G14; G41; M41
Suggested Citation: Suggested Citation