Institutional Investor Attention

Abstract

We study institutional investor attention using daily internet news reading. We measure fund-level attention to both aggregate and firm-specific information and relate it to portfolio allocation decisions. During economic downturns, funds shift their attention from firm-specific news toward aggregate news, and the cross-sectional dispersion of attention to firm-specific news increases. Fund attention is significantly and positively related to portfolio holdings, and this relationship is stronger for more sophisticated funds and those with limited attention capacity. Attention to news exhibits clear habitats with most variation driven by fund and firm effects. Lastly, attention by sophisticated investors predicts future stock returns.

Keywords: Investor Attention, Portfolio Allocation

JEL Classification: G10, G20, G40