Investor Attention and Stock Returns

57 Pages Posted: 26 Jun 2018 Last revised: 14 Oct 2019

See all articles by Jian Chen

Jian Chen

Xiamen University - School of Economics

Guohao Tang

Hunan University - College of Finance and Statistics

Jiaquan Yao

Jinan University - Management School

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School; China Academy of Financial Research (CAFR)

Date Written: October 10, 2019

Abstract

This paper examines whether investor attention can predict the aggregate stock market. We find that individual investor attention proxies proposed in the literature collectively have a common component that has significant power in predicting stock market excess returns, both in-sample and out-of-sample. This common component is well extracted by using partial least squares and scaled principal component analysis approaches. Moreover, this component can deliver sizable economic gains for mean-variance investors in asset allocation. We identify two economic sources of the predictability: the predictive power of investor attention for aggregate stock market primarily stems from its ability to predict returns in down markets and returns of bad-news driven stocks.

Keywords: Investor Attention, Stock Return Predictability, Partial Least Square (PLS), Principal Component Analysis (PCA), Out-of-Sample Forecast

JEL Classification: C22, C53, G11, G12, G17

Suggested Citation

Chen, Jian and Tang, Guohao and Yao, Jiaquan and Zhou, Guofu, Investor Attention and Stock Returns (October 10, 2019). Available at SSRN: https://ssrn.com/abstract=3194387 or http://dx.doi.org/10.2139/ssrn.3194387

Jian Chen

Xiamen University - School of Economics ( email )

422 Siming Nan Road
Xiamen, Fujian 361005
China

Guohao Tang

Hunan University - College of Finance and Statistics ( email )

Lushan Road (S), Yuelu District
Changsha, Hunan 410082
China

Jiaquan Yao

Jinan University - Management School ( email )

No. 601, West Huangpu Road
Guangzhou, Guangdong 510632
China

Guofu Zhou (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

Washington University
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-6384 (Phone)
314-658-6359 (Fax)

HOME PAGE: http://apps.olin.wustl.edu/faculty/zhou/

China Academy of Financial Research (CAFR)

Shanghai Advanced Institute of Finance
Shanghai P.R.China, 200030
China

Register to save articles to
your library

Register

Paper statistics

Downloads
605
Abstract Views
2,119
rank
44,197
PlumX Metrics