Investor Attention and Expected Return

Abstract

In this paper, we analyze the effect of investor attention level on expected return in the Korean stock market by investor type. We find that the risk-adjusted excess returns in the next period are significantly higher when the institutional and foreign investor’s attention is high. In other words, investment strategies that buy stocks in higher attention groups and sell those in lower attention groups provide significant excess returns. This result is in contrast to the argument that the market operates more competitively and moves more efficiently as the number of investors increases due to the increased investor attention. Next, we examine how the degree of attention of institutional, individual, and foreign investors affects each other. The analysis reveals that the attention of individual investors affects the attention of institutional investors in the next period, and vice versa. In addition, as a result of group analysis according to the size of company and stock price, we find that the investor's attention affects the market differently depending on the type of investors and stock price level.

Citation

Lee, E.J., Lee, Y.K. and Chae, J. (2019), "Investor Attention and Expected Return", Journal of Derivatives and Quantitative Studies: 선물연구, Vol. 27 No. 1, pp. 49-83. https://doi.org/10.1108/JDQS-01-2019-B0002