All that Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors

51 Pages Posted: 20 Jun 2005

See all articles by Brad M. Barber

Brad M. Barber

University of California, Davis

Terrance Odean

University of California, Berkeley - Haas School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: November 2006

Abstract

We test and confirm the hypothesis that individual investors are net buyers of attention-grabbing stocks, e.g., stocks in the news, stocks experiencing high abnormal trading volume, and stocks with extreme one day returns. Attention-driven buying results from the difficulty that investors have searching the thousands of stocks they can potentially buy. Individual investors don't face the same search problem when selling because they tend to sell only stocks they already own. We hypothesize that many investors only consider purchasing stocks that have first caught their attention. Thus, preferences determine choices after attention has determined the choice set.

Keywords: attention, news, investor behavior, individual investors, behavioral finance, behavioral biases

JEL Classification: G11, G12, G14, G24

Suggested Citation

Barber, Brad M. and Odean, Terrance, All that Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors (November 2006). EFA 2005 Moscow Meetings Paper, Available at SSRN: https://ssrn.com/abstract=460660 or http://dx.doi.org/10.2139/ssrn.460660

Brad M. Barber

University of California, Davis ( email )

Graduate School of Management
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Davis, CA 95616
United States
530-752-0512 (Phone)
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Terrance Odean (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

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Berkeley, CA 94720
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510-666-2561 (Fax)

HOME PAGE: http://www.haas.berkeley.edu/faculty/odean.html

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