Investor attention, analysts coverage and idiosyncratic volatility puzzle: based on behavioral perspective

Abstract

Purpose

Considering the role of analysts in disseminating information, the paper explains the idiosyncratic volatility puzzle of China's stock market. As the largest developing country, China's research can provide meaningful reference for the research of financial markets in other new countries.

Design/methodology/approach

From the perspective of behavior, establishing a direct link between individual investor attention and stock price overvaluation.

Findings

The authors find that there is a significant idiosyncratic volatility puzzle in China's stock market. Due to the role of mispricing, individual investor attention significantly enhances the idiosyncratic volatility effect, that is, as individual investor attention increases, the greater the idiosyncratic volatility, the lower the expected return. Attention can explain the idiosyncratic volatility puzzle in China's stock market. In addition, due to the role of information production and dissemination, securities analysts can reduce the degree of market information asymmetry and enhance the transparency of market information.

Originality/value

China is the second largest economy in the world, and few scholars analyze it from the perspective of investors' attention. The authors believe this paper has the potential in contributing to the academia.

Citation

Tian, X., Zhang, Z., Zhang, C. and Gao, M. (2022), "Investor attention, analysts coverage and idiosyncratic volatility puzzle: based on behavioral perspective", International Journal of Emerging Markets, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJOEM-02-2021-0289