Mood, attention, and household trading: Evidence from terrorist attacks

Abstract

In response to terrorism, households reduce their trading activity and equity ownership. While the decline in the net value of trades is consistent with increasing risk aversion, reduced Google search volumes, lower aggregate attention indices, and fewer purchases of newsworthy stocks suggest that investors pay less attention to the financial markets after attacks. Additional tests indicate that investor inattention is driven by distress-induced avoidance rather than distraction, and the effect is limited to retail investors. Finally, reduced retail trading after attacks leads to a decline in stock liquidity.