Abstract
Using the panel vector autoregression (VAR) method, this paper documents relationships between investor attention and stock market activities; i.e., return, volatility, and trading volume, respectively. In sum, bidirectional dynamic interdependence of the SVI–stock market activities relationship exists, in which the SVI–trading volume relationship shows the strongest evidence. This is consistent with prior literature using trading volume as a proxy of investor attention. However, the relationships in the developed and developing markets are statistically significantly different. The stock markets in the developed markets over-react more to the search volume than those in the developing markets. We postulate that investor attention is one of the key elements in asset pricing in stock markets.
Highlights
Differences in cross-sectional and time-varying investor attention are important components for improving the quality of investment decision-making, as well as for supporting the economic aggregates (Jacobs 2015), though attention is a scarce cognitive resource (Kahneman 1973)
We find that the relationship between stock market index volatility (SVI) and abnormal trading volume is negative for a window of the previous two weeks, but reverses to be positive for a window of the past week
We present our results in three panels, i.e., Panel A for the relationship between the SVI and stock market index return (SVI–return), Panel B for the relationship between the SVI and stock market volatility (SVI–volatility), and Panel C for the relationship between the SVI and stock market abnormal trading volume (SVI–volume)
Summary
Differences in cross-sectional and time-varying investor attention are important components for improving the quality of investment decision-making, as well as for supporting the economic aggregates (Jacobs 2015), though attention is a scarce cognitive resource (Kahneman 1973). Seminal works on investor attention at the country level show that investor attention measured by the Google SVI1 influences stock market activities such as return (Da et al 2011 and Tantaopas et al 2016), volatility (Dimpfl and Jank 2016; and Andrei and Hasler 2015), trading volume (Takeda and Wakao 2014), and liquidity (Ding and Hou 2015), respectively.. Seminal works on investor attention at the country level show that investor attention measured by the Google SVI1 influences stock market activities such as return (Da et al 2011 and Tantaopas et al 2016), volatility (Dimpfl and Jank 2016; and Andrei and Hasler 2015), trading volume (Takeda and Wakao 2014), and liquidity (Ding and Hou 2015), respectively.2 These findings provide support for a potential of interrelations between investor Seminal works on investor attention at the country level show that investor attention measured by the Google SVI1 influences stock market activities such as return (Da et al 2011 and Tantaopas et al 2016), volatility (Dimpfl and Jank 2016; and Andrei and Hasler 2015), trading volume (Takeda and Wakao 2014), and liquidity (Ding and Hou 2015), respectively. These findings provide support for a potential of interrelations between investor
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