Stale News, Limited Attention Bias and Institutional Investors

60 Pages Posted: 28 Aug 2020 Last revised: 24 May 2021

See all articles by Maria Efthymiou

Maria Efthymiou

University of Cyprus

Andreas Milidonis

University of Cyprus - Department of Accounting and Finance

Date Written: May 18, 2021

Abstract

We test for limited attention bias in institutional investor trading, when news is stale. Using the universe of transaction-level data in the U.S. corporate bond market around stale downgrades, we find an abnormal increase in trading volume, abnormal bond returns and a subsequent reversal. We do not find a reversal for abnormal bond returns associated with informative rating actions. We then focus on the largest, domestic, institutional investors, thus matching investor characteristics to individual transactions. We document an association between restatements and abnormal trading on stale news. These results provide supportive evidence that limited attention bias affects institutional investors.

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

JEL Classification: G12, G23, G24, G41

Suggested Citation

Efthymiou, Maria and Milidonis, Andreas, Stale News, Limited Attention Bias and Institutional Investors (May 18, 2021). 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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