Investor Attention and Asset Pricing Anomalies

59 Pages Posted: 17 Aug 2019 Last revised: 1 Oct 2019

See all articles by Lei Jiang

Lei Jiang

Tsinghua University

Jinyu Liu

University of International Business and Economics (UIBE) - School of Banking and Finance

Lin Peng

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Baolian Wang

University of Florida - Department of Finance, Insurance and Real Estate

Date Written: September 30, 2019

Abstract

We comprehensively examine the relationship between investor attention and widely studied financial market anomalies. We find that anomaly-based arbitrage strategies generate greater abnormal returns following days of high investor attention. This result is robust after controlling for risk factors and in a natural experiment setting in which the rounding of stock prices generates exogenous variations in investor attention. Further analysis of large-order imbalances shows that large traders trade more aggressively to take advantage of anomalies following high attention days. Consistent with the predictions of the Abreu and Brunnermeier (2002) model of arbitrage with synchronicity risk, the evidence suggests that anomalies are driven by mispricing and that arbitrageurs coordinate during periods of high attention.

Keywords: investor attention; anomaly; price limit; trade imbalance

JEL Classification: G12; G15; G40

Suggested Citation

Jiang, Lei and Liu, Jinyu and Peng, Lin and Wang, Baolian, Investor Attention and Asset Pricing Anomalies (September 30, 2019). Baruch College Zicklin School of Business Research Paper No. 2019-08-04. Available at SSRN: https://ssrn.com/abstract=3437527 or http://dx.doi.org/10.2139/ssrn.3437527

Lei Jiang

Tsinghua University ( email )

Beijing, 100084
China

Jinyu Liu

University of International Business and Economics (UIBE) - School of Banking and Finance ( email )

No.10, Huixindong Street, Chaoyang District
Beijing, 100029
China
+8613720001753 (Phone)

HOME PAGE: http://sbf.uibe.edu.cn/szdw/xyjs/zc/57847.htm

Lin Peng

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

17 Lexington Avenue
New York, NY 10010
United States

Baolian Wang (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

314 Stuzin Hall
Gainesville, FL 32611
United States

HOME PAGE: http://www.wangbaolian.com

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