Limited Attention Bias and Institutional Investor Characteristics

58 Pages Posted: 28 Aug 2020

See all articles by Maria Efthymiou

Maria Efthymiou

University of Cyprus

Andreas Milidonis

University of Cyprus - Department of Accounting and Finance

Date Written: August 27, 2020

Abstract

We test for limited attention bias in institutional investor trading. We use the universe of transaction-level data of institutional investors trading in the U.S. corporate bond market. Results show that trading volume abnormally increases in subsamples of uninformative rating actions. We also find abnormal bond returns associated with uninformative rating actions. We then zero in on transaction-level data of the largest domestic institutional investor, an approach that allows us to match investor characteristics to individual transactions. We document an association between restatements and abnormal trading on uninformative news. These results provide supportive evidence that limited attention bias affects institutional investors.

Keywords: Behavioral Finance, Limited Attention, Institutional Investors, News Analytics

JEL Classification: G12, G23, G24, G41

Suggested Citation

Efthymiou, Maria and Milidonis, Andreas, Limited Attention Bias and Institutional Investor Characteristics (August 27, 2020). Available at SSRN: https://ssrn.com/abstract=3681822 or http://dx.doi.org/10.2139/ssrn.3681822

Maria Efthymiou

University of Cyprus ( email )

Cyprus
0035722893655 (Phone)

Andreas Milidonis (Contact Author)

University of Cyprus - Department of Accounting and Finance ( email )

P.O. Box 20537
Nicosia CY-1678
Cyprus
+357 22 893 626 (Phone)

HOME PAGE: http://www.ucy.ac.cy/~amilidon/

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