Does investor attention increase stock market volatility during the COVID-19 pandemic?

Abstract

We decompose investor attention to the COVID-19 pandemic into expected and unexpected segments and investigate their effects on realized and fundamental stock market volatility. We show that expected investor attention can explain both types of volatility. However, unexpected investor attention can only explain realized volatility, though its realized volatility effect outweighs that of expected investor attention. Moreover, the relationship between expected investor attention and either type of volatility is unidirectional whereas the interaction between unexpected investor attention and realized volatility is bidirectional. These findings suggest that expected (unexpected) investor attention is informational (noisy and more harmful) to the stock market.