Investor Attention and Asset Pricing Anomalies
62 Pages Posted: 17 Aug 2019 Last revised: 30 Aug 2021
Date Written: August 30, 2021
We investigate the relationship between investor attention and financial market anomalies. We find that anomaly returns tend to be higher following high-attention days. The result is robust after controlling for the effect of news and in a natural experiment setting in which a stock market regulation and rounding errors generate exogenous variations in attention. An analysis of order imbalances suggests that large traders trade on anomaly signals more aggressively upon observing higher attention. We discuss the extent to which the findings are driven by inattention-driven underreaction, bias amplification, or coordinated arbitrage mechanisms, thereby providing insight into the understanding of anomalies.
Keywords: investor attention; anomaly; price limit; coordination; synchronicity risk
JEL Classification: G12; G15; G40
Suggested Citation: Suggested Citation