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Open Access
Article
Publication date: 28 February 2019

Eun Jung Lee, Yu Kyung Lee and Joon Chae

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…

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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.

Details

Journal of Derivatives and Quantitative Studies, vol. 27 no. 1
Type: Research Article
ISSN: 2713-6647

Keywords

Article
Publication date: 29 April 2022

Ye Wang, Fusheng Wang and Shiyu Liu

This paper aims to discuss whether the attention of investors to abnormalities can serve as a mechanism for the influence of online media coverage on earnings management.

Abstract

Purpose

This paper aims to discuss whether the attention of investors to abnormalities can serve as a mechanism for the influence of online media coverage on earnings management.

Design/methodology/approach

Based on Baidu index data of China’s A-share listed companies between 2014 and 2018, this paper studies influencing mechanism of online media reports on earnings management from the perspective on abnormal investor attention.

Findings

The results show that internet media reports can impose pressure on managers of companies by inducing abnormal focus of the public on listed companies and further force the latter to generate more actions on the management of earnings. It is the abnormal rather than normal investor attention that mediates network media reports and earnings management.

Practical implications

This research enriches and refines the theory on influencing mechanism of media effects on earnings management and provides significant empirical evidence for future researches. Meanwhile, the conclusion of the research is of great practical importance for instructing listed firms dealing with media reports, guiding rational investment of investors and intensifying precision regulation of regulators.

Originality/value

By categorizing abnormal investor attention into active spontaneous abnormal attention which is not guided by media report and passive guided abnormal attention which is guided by media reports, the authors clarify the difference between the two categories. The result indicates that it is only the latter that is the influential mechanism of media report on earnings management.

Details

Nankai Business Review International, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2040-8749

Keywords

Article
Publication date: 8 February 2022

Kirti Saxena and Madhumita Chakraborty

This study aims to explore the asset pricing implications of attention allocation theories in the Indian stock market.

Abstract

Purpose

This study aims to explore the asset pricing implications of attention allocation theories in the Indian stock market.

Design/methodology/approach

Investor attention is captured through investors' search behavior, the Google search volume index. Panel least square method is used in this study, and the research is performed at firm-level upon NSE100 constituent firms with 21,566 firm-week observations.

Findings

The authors find a significant increase in abnormal return following an increase in abnormal attention. Also, this effect is strengthened for smaller firms and firms with positive sentiments. Further, applying a geographic lens to the investigation, it is found that the attention impact is attributable to local investors. Finally, the study demonstrates that local attention-based portfolio formation and trading strategy, i.e. long in high abnormal local attention stocks and short in low abnormal local attention stocks, leads to a significant return premium.

Research limitations/implications

This study reveals that behavioral factors like investor attention drive the Indian Stock Market. Also, the geography analysis shows that observing investors' behavior enables predicting the arrival of private information. Thus abnormal local attention can be a potential input factor for forecasting exercises and trading strategy formation, thereby aiding in exploiting profitable opportunities.

Originality/value

The study captures asset pricing implications of investor attention and explores the effect of firm size and sentiment on the attention–return relationship in an emerging economy, India. It also relates location proximity with investors' attention allocation and tests its implications on stock prices.

Details

Managerial Finance, vol. 48 no. 4
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 21 December 2021

Sana Saleem and Muhammad Usman

The purpose of this study is to finds out how investor attention plays the moderating role between the relation of information risk and COE by considering the effect of…

Abstract

Purpose

The purpose of this study is to finds out how investor attention plays the moderating role between the relation of information risk and COE by considering the effect of three different types of information risk, that is private information, lack of quality and transparent information.

Design/methodology/approach

For that purpose, data is collected from all the non-financial firms listed on PSX from 2007 to 2019. Two-step system GMM dynamic panel estimators are applied to test the dynamic nature of the proposed model.

Findings

The findings of the study show that investor attention reduces these three information risks by increasing the stock liquidity and decreasing the crash risk which ultimately decreases the COE. Also, this study examined the role of investor attention between the relations of information risk and corporate investment in the dynamic panel model, where the two-step system generalized method of the moment has been applied. The finding of the study shows that investor attention stimulates the innovative investment by increasing investor confidence and decreasing the agency conflict.

Originality/value

This study contributes to the literature by providing the novel findings by considering the role of investor attention in reducing the effect of three different types of information risk, that is private information, less quality as well as less transparency of information and further their effect on the cost of equity.

Details

Asia-Pacific Journal of Business Administration, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1757-4323

Keywords

Content available
Article
Publication date: 11 December 2020

Lee A. Smales

COVID-19 has had an immense impact on global stock markets, with no sector escaping its effects. Investor attention towards COVID-19 surged as the virus spread, the number…

2263

Abstract

Purpose

COVID-19 has had an immense impact on global stock markets, with no sector escaping its effects. Investor attention towards COVID-19 surged as the virus spread, the number of cases grew and its consequences imposed on everyday life. We assess whether this increase in investor attention may explain stock returns across different sectors during this unusual period.

Design/methodology/approach

We adopt the methodology of Da et al. (2015), using Google search volume (GSV) as a proxy for investor attention to examine the relationship between investor attention and stock returns across 11 sectors.

Findings

Our results demonstrate that heightened attention towards COVID-19 negatively influences US stock returns. However, relatively speaking, some sectors appear to have gained from the increased attention. This outperformance is centred in the sectors most likely to benefit (or likely to lose least) from the crisis and associated spending by households and government (i.e. consumer staples, healthcare and IT). Such results may be explained by an information discovery hypothesis in the sense that investors are searching online for information to enable a greater understanding of COVID-19's impact on relative stock sector performance.

Originality/value

While we do not claim that investor attention is the only driver of stock returns during this unique period, we do provide evidence that it contributes to the market impact and to the heterogeneity of returns across stock market sectors.

Details

Review of Behavioral Finance, vol. 13 no. 1
Type: Research Article
ISSN: 1940-5979

Keywords

Article
Publication date: 16 March 2020

Keke Wu, Yan Yu and Dayong Dong

This paper aims to examine the direct and indirect effects of advertising on investor behavior.

Abstract

Purpose

This paper aims to examine the direct and indirect effects of advertising on investor behavior.

Design/methodology/approach

The authors use a novel and direct measure of investor attention: the number of investors whose watch lists has the stock.

Findings

The authors find that beyond its direct effect through information dissemination, advertising has an indirect effect with regard to grabbing investor attention and the trading response. The authors further find that an increase in attention induces a positive influence on the impact of advertising on investor behavior.

Originality/value

First, it complements studies of home bias, in which investors are more likely to buy familiar stocks. Second, it also complements the literature on advertising and investor attention and on attention and capital markets. Third, with a new and unambiguous measure of investor attention. Fourth, combining the direct and indirect aspects, this study presents a detailed description of the financial market effect of advertising.

Details

International Journal of Accounting & Information Management, vol. 28 no. 3
Type: Research Article
ISSN: 1834-7649

Keywords

Article
Publication date: 28 March 2019

Dayong Dong and Keke Wu

The purpose of this paper is to empirically examine whether investor attention is a significant risk pricing factor.

Abstract

Purpose

The purpose of this paper is to empirically examine whether investor attention is a significant risk pricing factor.

Design/methodology/approach

Using investor attention data from Eastmoney.com, which provides for each stock the number of investors whose watch list includes that stock on a daily basis, this paper constructs a “heat” factor based on the change in investor attention and a “market exposure” factor based on the proportion of attention on a given stock over the attention to all stocks. Using the Fama−MacBeth two-step regression and a rolling analysis, this study examines the ability of the investor attention factor to explain market returns.

Findings

The empirical results show that there exists a risk premium for the “heat” factor and “market exposure” factor that is significantly different from zero. This finding shows that investor attention can systematically influence stock returns, making it a significant risk pricing factor.

Practical implications

This paper’s research on the risk pricing factors of investor attention can help investors to rationally build investment portfolios, avoid risks and form a sound investment concept, which will further reveal the information recognition mechanism of the capital market and standardize the information disclosure behavior of listed companies.

Originality/value

This paper provides evidence that investor attention is a risk pricing factor for the stock market. There are “heat” factors and “market exposure” factors in the Chinese stock market that significantly affect the purchasing behavior of individual investors.

Details

China Finance Review International, vol. 10 no. 1
Type: Research Article
ISSN: 2044-1398

Keywords

Book part
Publication date: 15 March 2022

Lanfeng Kao, Anlin Chen and Chih-Hsiang Chen

This chapter investigates attention theory by examining retail investors' true intention to purchase. Attention theory indicates that investors, and especially retail…

Abstract

This chapter investigates attention theory by examining retail investors' true intention to purchase. Attention theory indicates that investors, and especially retail investors, typically invest in stocks about which they are aware. Previous studies test attention theory by analyzing stock price behavior or trading volume. However, stock prices and trading volume are primarily driven by institutional investors rather than retail investors. We examine investor attention using initial public offering (IPO) subscriptions in Taiwan because only retail investors are allowed to subscribe to Taiwanese IPOs. We use media coverage as a measure of passive retail investor attention and Google search volume as a measure of active retail investor attention. Our results reveal that active attention has a more profound relationship with retail investor IPO subscriptions than passive attention does. Additionally, information about the value of IPOs taken from trading prices in the pre-IPO market mitigates the effects of attention theory.

Details

Advances in Pacific Basin Business, Economics and Finance
Type: Book
ISBN: 978-1-80117-313-1

Keywords

Article
Publication date: 24 December 2021

Yang Gao, Yangyang Li and Yaojun Wang

This paper aims to explore the interaction between investor attention and green security markets, including green bonds and stocks.

Abstract

Purpose

This paper aims to explore the interaction between investor attention and green security markets, including green bonds and stocks.

Design/methodology/approach

This study takes the Baidu index of “green finance” as the proxy for investor attention and constructs several generalized prediction error variance decomposition models to investigate the interdependence. It further analyzes the dynamic interaction between investor attention and the return and volatility of green security markets using the rolling time window.

Findings

The empirical analysis and robustness test results reveal that the spillovers between investor attention and the return and volatility of the green bond market are relatively stable. In contrast, the spillover level between investor attention and the green stock market displays significant time-varying and asymmetric effects. Moreover, the volatility spillover between investor attention and green securities is vulnerable to major financial events, while the return spillover is extremely sensitive to market performance.

Originality/value

The conclusion further expands the practical application and theoretical framework of behavioral finance in green finance and provides a new reference for investors and regulators. Besides, this study also lays a theoretical basis for investors to focus on the practical application of volatility prediction and risk management in green securities.

Details

China Finance Review International, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2044-1398

Keywords

Article
Publication date: 21 September 2010

Pornanong Budsaratragoon, Suntharee Lhaopadchan and David Hillier

We investigate whether limited investor attention is a factor in the effectiveness of institutional shareholder activism. Prior research has shown that an inability of…

Abstract

We investigate whether limited investor attention is a factor in the effectiveness of institutional shareholder activism. Prior research has shown that an inability of market participants to allocate sufficient intellectual effort to the investment decision can have an impact on market price and volume behavior. We extend this research in an applied setting by considering the effectiveness of the California Public Employees’ Retirement System (CalPERS) focus list, whose aim is to improve the performance and corporate governance of target firms. We find that the share price and volume response to being included in the focus list is a function of the investor attention in a stock, which in turn has an impact on the subsequent managerial response. This suggests that when attention is a scarce cognitive resource, the proactive exploitation of news signals can be an efficient activism strategy.

Details

Review of Behavioural Finance, vol. 2 no. 2
Type: Research Article
ISSN: 1940-5979

Keywords

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