Empirical Study on the Relationship between Investors’ Attention and Individual Stock Returns in the Chinese Stock Market

Abstract

Investors’ attention to information plays an important role when investors make investment decisions. Individual investors analyze and judge the information that attracts their attention and adjusts their investment behavior, which leads to temporary pricing deviation. This paper uses abnormal trading volume as an indicator to measure the degree of investors’ attention to individual stocks, and uses panel data model and vector autoregressive model (VAR) to study the relationship between investors’ attention driven trading and stock return volatility. The empirical study finds that investors’ attention has a significant positive impact on the current stock returns. When the investors pay more attention to the specific stocks, it will cause the net buying behavior, and the stock price will rise, leading to the increase of the current stock yield. Unlike the short-term effect of investors’ attention on stock returns, the impact period of stock returns on investors’ attention is relatively long. The influence period of stock returns on investors’ attention lasts about three weeks according to the empirical study.