Distraction effects on stock return co-movements: Confirmation from the Shenzhen and Shanghai stock markets

Abstract

This study replicates a key part of the paper by Huang et al. (2019) using the original framework and examines the findings in an alternative stock market. Huang et al. (2019) document that, on days with attention shocks driven by major jackpot lottery drawings, stock return co-movement increases in the Taiwan stock market. They suggest that in distraction events, due to limited cognitive capacity to allocate attention, inventors shift their focus of attention from firm-specific information to broader market-specific information. This leads to higher stock return co-movement. Our study aims to test the reproducibility of the empirical framework presented by Huang et al. (2019) and the robustness of the reported results in the Shenzhen and Shanghai stock markets. The results confirm the original paper's finding of increased stock return co-movement on high distraction days and provide similar results in the Shenzhen and Shanghai stock markets (together as well as separately).