When Does Attention Matter? The Effect of Investor Attention on Stock Market Volatility Around News Releases

64 Pages Posted: 9 Jan 2020 Last revised: 10 Apr 2021

See all articles by Daniele Ballinari

Daniele Ballinari

University of Basel

Francesco Audrino

University of St. Gallen; Swiss Finance Institute

Fabio Sigrist

Lucerne University of Applied Sciences and Arts

Date Written: November 9, 2020

Abstract

We empirically investigate how retail and institutional investor attention is related to the way stock markets process information. With a focus on 360 US stocks in the S&P 500 universe, our results show that higher retail investors' attention around news releases increases the post-announcement stock return volatility, whereas institutional investor attention has a small but negative impact on volatility on days following news releases on average over the cross-section of companies. These findings are in line with the hypotheses that attention of retail investors slows price-adjustments to new information and attention of institutional investors results in the opposite reaction. We show that these effects are heterogeneous in the type of news and the topic of the information being released. A portfolio allocation application highlights that these results are not only statistically significant but also sizeable in economic terms and can lead to an overperformance as large as dozens of basis points.

Keywords: limited attention, realized volatility, investor attention, retail investors, institutional investors, StockTwits, Twitter, news releases

JEL Classification: G14, G17, G40

Suggested Citation

Ballinari, Daniele and Audrino, Francesco and Sigrist, Fabio, When Does Attention Matter? The Effect of Investor Attention on Stock Market Volatility Around News Releases (November 9, 2020). Available at SSRN: https://ssrn.com/abstract=3506720 or http://dx.doi.org/10.2139/ssrn.3506720

Daniele Ballinari (Contact Author)

University of Basel ( email )

Petersplatz 1
Basel, CH-4003
Switzerland

Francesco Audrino

University of St. Gallen ( email )

Bodanstrasse 6
St. Gallen, CH-9000
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Fabio Sigrist

Lucerne University of Applied Sciences and Arts ( email )

Switzerland

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