Economic Uncertainty and Investor Attention

38 Pages Posted: 4 Mar 2018 Last revised: 31 Jul 2019

See all articles by Daniel Andrei

Daniel Andrei

McGill University

Henry L. Friedman

University of California, Los Angeles (UCLA) - Accounting Area

N. Bugra Ozel

University of Texas at Dallas

Date Written: July 30, 2019

Abstract

In a dynamic model of information acquisition, we show that higher economic uncertainty causes investors to rationally allocate more attention to firm-specific information. Higher uncertainty weakens the informativeness of stock prices, which increases investors' incentive to search for information. The model yields clear testable predictions that we take to the data. We show that corporate earnings announced on days with higher economic uncertainty are associated with larger increases in SEC EDGAR queries, stronger earnings response coefficients, and weaker post-earnings announcement drift. These findings suggest that economic uncertainty attracts investor attention to firm-specific information and improves price discovery around earnings announcements.

Keywords: Investor attention; Economic uncertainty; Firm-specific news; Earnings announcements

JEL Classification: G14; G41; M41

Suggested Citation

Andrei, Daniel and Friedman, Henry L. and Ozel, N. Bugra, Economic Uncertainty and Investor Attention (July 30, 2019). 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

Henry L. Friedman (Contact Author)

University of California, Los Angeles (UCLA) - Accounting Area ( email )

D406 Anderson Complex
Los Angeles, CA 90095-1481
United States

N. Bugra Ozel

University of Texas at Dallas ( email )

800 W Campbell Rd SM41
Richardson, TX 75201
United States

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