Attention and the Retail Alignment Puzzle

100 Pages Posted: 7 Aug 2023

Date Written: July 21, 2023


This paper establishes a new empirical finance puzzle, the retail alignment puzzle: aggregate retail trader purchases and sales are nearly perfectly correlated across time and in the cross section of equities. Consistent with this puzzle, retail purchases and sales in the cross section are linearly predicted by the same two attention-associated factors, recent return salience and recent volume, with regressions on purchases and sales possessing almost identical coefficients. Using both directly measured attention through Google Trends search volumes and common indirect measures of attention such as volumes and extreme returns, I show that surges in retail attention consistently generate both large trading volumes and proportionally limited net trading. I then use an equilibrium disagreement model to show analytically and through simulations that while positive shocks to retail attention, sentiment, and disagreement all increase price, only shifts in attention are capable of reproducing empirical volume and return patterns. This paper's results suggest that attention is one of the core drivers of retail volume in common stocks.

Keywords: attention, retail trader, buy sell imbalance, volume, turnover, disagreement, asset pricing, consideration set, sentiment

JEL Classification: G12, G11, G40, G41, G23, C60

Suggested Citation

Graves, Daniel, Attention and the Retail Alignment Puzzle (July 21, 2023). Available at SSRN: or

Daniel Graves (Contact Author)

Yale University ( email )

493 College St
New Haven, CT CT 06520
United States

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