Proxy For Investor Attention Research Articles

Investor Attention and Stock Returns

We find that investor attention proxies proposed in the literature collectively have a common component that has significant power in predicting stock market risk premium, both in-sample and out-of-sample. This common component is well extracted by using partial least squares, scaled principal component analysis, and principal component analysis approaches. Moreover, this component can deliver sizable economic gains for mean-variance investors in asset allocation. The predictive power of investor attention for the aggregate stock market primarily stems from the reversal of temporary price pressure and from the stronger forecasting ability for high-variance stocks.

R&D investment and risk in Brazil

This study evaluates whether the undervaluation of R&D firms, as observed in developed markets, is due to mispricing or to risk adjustment for innovative activity. Analyzing stocks listed on the São Paulo Stock Exchange from 2006 through the first half of 2014, we compare returns to portfolios of firms differing in industry-adjusted R&D intensity (IRDI), without and with controls for risk (modeled in two ways). Our results indicate that a long-short strategy of buying stock in high-IRDI firms and short-selling stock in low-IRDI firms provides a significant abnormal return of 4.78% per year without controls for risk; after various risk factors are controlled, the return rises to 5.16% or 5.28%, depending on how risk is modeled. These results suggest that investors undervalue companies that invest more than their industry's average in R&D, and that the abnormal returns cannot be attributed to systematic In fact, cross-sectional regressions show that firms with greater IRDI are less risky than those with low intensity, exhibiting lower future volatility in the three years after the R&D investment. In addition, using the number of analysts as a proxy for investor attention, we show that companies with high IRDI that also provide more information to the market about their innovation projects can mitigate approximately 40% of their potential undervaluation.

How does investor attention affect international crude oil prices?

In order to investigate the impacting mechanism of investors’ attention and crude oil prices, we construct a direct, timely and unambiguous proxy for investor attention in crude oil market by aggregating the Google search volume index (GSVI). Based on the GSVI, we employ the Structural Vector Autoregression (SVAR) model to empirically explore the impact of investor attention on WTI crude oil price from January 2004 to November 2016. The results indicate that: (1) investor attention does have significant negative impact on WTI crude oil price during the sample period; (2) investor attention shocks contributes 15% to the long-run fluctuation of WTI crude oil price during the sample period, which is second only to that of supply shocks (69%) among the contributors concerned; and (3) when the business cycle stays in expansion, it has positive influence on both investor attention and WTI crude oil price. Meanwhile, our robustness check, using Brent crude oil price and a different construction form of the GSVI, confirms that the central results are reliable.

Investor Attention Strategy

ABSTRACTThis article documents the motivation, the construction, and the profitability of an investment strategy based on investor attention in the options market. Using the option volume after a 1-week dormant period as a proxy for investor attention, the author shows that heightened investor attention after the dormant period has rich investment implications. A portfolio constructed on the basis of volume spike events immediately after the dormant period generates an abnormal return of 68 basis points on a monthly basis (8.16% on an annualized basis). This abnormal return is robust to risk adjustment using standard asset pricing models. The author's findings constitute strong evidence that it is profitable for outside investors to mimic attentive investors in the options market and reap economically and statistically significant profits.

Google Searches and Stock Returns: Indian Evidence

Using Google Trends data as a proxy for investor attention, we examine the relation between investor attention and future stock returns in the Indian stock market during the period 2012-2017 (254 weeks) in a sample of 93 stocks. The results show that a higher GSV leads to a positive excess return in the first week and negative in the second week. The findings are consistent with the “price pressure hypothesis” of Barber and Odean (2008).

It Depends on Where You Search: Institutional Investor Attention and Underreaction to News

We propose a direct measure of abnormal institutional investor attention (AIA) using news searching and news reading activity for specific stocks on Bloomberg terminals. AIA is highly correlated with institutional trading measures and related to, but different from, other investor attention proxies. Contrasting AIA with retail attention measured by Google search activity, we find that institutional attention responds more quickly to major news events, leads retail attention, and facilitates permanent price adjustment. The well-documented price drifts following both earnings announcements and analyst recommendation changes are driven by announcements to which institutional investors fail to pay sufficient attention.Received February 24, 2016; editorial decision December 29, 2016 by Editor Andrew Karolyi.

The effects of investor attention on commodity futures markets

This study utilizes the search volume for key terms on Google as a direct and timely proxy for investor attention in order to examine how attention impacts commodity futures prices, We provide significant evidence for attention's influence on 13 commodity futures and the interaction between attention and returns, even after controlling for important macroeconomic variables. We also examine the impact of investor attention on market efficiency. Results show that rising attention, on one hand, increases information efficiency and attenuates arbitrage opportunities, whereas, on the other hand, decreases market efficiency by facilitating herd behavior.

Time-Varying Demand for Lottery: Speculation Ahead of Earnings Announcements

Investor preferences for holding speculative assets are likely to be more pronounced ahead of firms' earnings announcements, probably because of lower inventory costs and immediate payoffs or because of enhanced investor attention. We show that the demand for lottery-like stocks is stronger ahead of earnings announcements, leading to a price run-up for these stocks. In sharp contrast to the standard underperformance of lottery-like stocks, lottery-like stocks outperform non-lottery stocks by about 52 basis points in the 5-day window ahead of earnings announcements. However, this return spread is reversed by 80 basis points in the 5-day window after the announcements. Moreover, this inverted-V-shaped pattern on cumulative return spreads is more pronounced among firms with a greater retail order imbalance, among firms with low institutional ownership, and in regions with a stronger gambling propensity, and it is also robust after controlling for past 12-month returns and various proxies for investor attention.

Venture Capital Backing, Investor Attention, and Initial Public Offerings

We propose and empirically analyze a new channel through which venture capitalists (VCs) may add value at IPO to the private firms that they invest in. We hypothesize that the IPOs of VC-backed firms garner greater “investor attention” (in the sense of Merton (1987)), allowing the IPO underwriters of such firms to perform two information-related roles more efficiently during the IPO book-building and road-show process: information dissemination, where the lead underwriter disseminates noisy information about various aspects of the IPO firm to institutional investors; and information extraction, where the lead underwriter extracts information useful in pricing the IPO firm equity from institutional investors. Based on this investor attention channel, we develop and test several implications for the IPO characteristics of VC-backed firms. We use a hand-collected dataset of pre-IPO media coverage as a proxy for investor attention in our empirical analysis. Our results are summarized as follows. First, IPOs of VC-backed firms attract greater investor attention than those of non-VC-backed firms; further, while the IPOs of both high- and low-reputation VC-backed firms attract greater investor attention than those of non-VC-backed firms, the IPOs of high-reputation VC-backed firms attract greater investor attention than those of low-reputation VC-backed firms. Second, VC-backed firms are associated with larger absolute values of IPO offer price revisions, greater IPO and after-market valuations, larger IPO initial returns, greater institutional investor equity holdings, and greater analyst coverage post-IPO. Our interaction tests reveal that, even after controlling for the direct effect of VC-backing, there is an incremental positive effect of higher investor attention received by VC-backed firms on various IPO characteristics. Our dynamic analysis of IPO firm valuation in the three years post-IPO shows that the valuation of VC-backed firms falls to a greater extent than those of non-VC-backed firms corresponding to investor attention fading with time, with the valuation of firms that received the greatest investor attention at IPO falling to the greatest extent. Our instrumental variable analysis shows that the positive relation we document between VC-backing, investor attention, and various IPO characteristics is causal.

Underwriter networks, investor attention, and initial public offerings

Using various centrality measures from social network analysis, we analyze how the location of a lead initial public offering (IPO) underwriter in its network of investment banks affects various IPO characteristics. We hypothesize that investment banking networks allow lead IPO underwriters to induce institutions to pay attention to the firms they take public and to perform two information-related roles during the IPO process: an information dissemination role, in which the lead underwriter uses its investment banking network to disseminate noisy information about various aspects of the IPO firm to institutional investors; and an information extraction role, in which the lead underwriter uses its investment banking network to extract information useful in pricing the IPO firm equity from institutional investors. Based on these two roles, we develop testable hypotheses relating lead IPO underwriter centrality to the IPO characteristics of firms they take public. We find that more central lead IPO underwriters are associated with larger absolute values of offer price revisions, greater IPO and after-market valuations, larger IPO initial returns, greater institutional investor equity holdings and analyst coverage immediately post-IPO, greater stock liquidity post-IPO, and better long-run stock returns. Using a hand-collected data set of pre-IPO media coverage as a proxy for investor attention, we show that an important channel through which more central lead IPO underwriters achieve favorable IPO characteristics is by attracting greater investor attention to the IPOs underwritten by them.

Underwriter Networks in Initial Public Offerings

Using various “centrality” measures from Social Network Analysis (SNA), we analyze how the location of a lead IPO underwriter in its network of investment banks affects various IPO characteristics. We hypothesize that investment banking networks allow lead IPO underwriters to induce institutions to pay attention to the firms they take public and to perform two information-related roles during the IPO process: an information dissemination role, where the lead underwriter uses its investment banking network to disseminate noisy information about various aspects of the IPO firm to institutional investors; and an information extraction role, where the lead underwriter uses its investment banking network to extract information useful in pricing the IPO firm equity from institutional investors. Based on these two roles, we develop testable hypotheses relating lead IPO underwriter centrality to the IPO characteristics of firms they take public. We find that more central lead IPO underwriters are associated with larger absolute values of offer price revisions; greater IPO and after-market valuations; larger IPO initial returns; greater institutional investor equity holdings and analyst coverage immediately post-IPO; greater stock liquidity post-IPO; and better long-run stock returns. Using a hand-collected data set of pre-IPO media coverage as a proxy for investor attention, we show that an important channel through which more central lead IPO underwriters achieve favorable IPO characteristics is by attracting greater investor attention to the IPOs underwritten by them.

Investor Inattention and Under-Reaction to Repurchase Announcements

This paper investigates investor inattention as a plausible explanation for market reaction to repurchase announcements. We use prior turnover as the proxy for investor attention to examine the difference in stock price performance between low-attention stocks and high-attention stocks. We find that low prior turnover firms experience greater underreaction to repurchase announcements than high prior turnover firms. Low prior turnover firms also experience larger positive long-run excess returns following announcements. Furthermore, a higher level of investor's inattention leads to higher degree of underreactions, resulting in higher actual completion rates.JEL Classifications: G14, G15

The Effect of Investor Attention on the Pricing of Seasoned Equity Offerings

I examine the role of investor attention on seasoned equity offerings’ (SEOs) outcomes. I use an archive of Thomson Reuters’ news articles and third-party newswires to proxy for investor attention. I find that the volumes of news articles prior to the offerings are positively associated with the offer price discounts of SEOs. Furthermore, the volumes of news articles are negatively associated with the cumulative abnormal returns three days around the SEOs. I conclude that the costs of equity increase with the frequency of news stories prior to SEOs. Overall, the evidence is consistent with the hypothesis that investor attention contributes to the efficiency of the stock market and affects investors’ information processing in SEOs.

Advertising, Attention, and Financial Markets

We investigate the impact of product market advertising on investor attention and financial markets. Using daily advertising data we can identify short-term effects of advertising. We develop a new proxy for investor attention based on a company's Wikipedia page views and show that advertising has a positive impact on investor attention, but only very little impact on turnover and liquidity. Most importantly, asset prices are not influenced by advertising in the short run. These findings are different from studies using yearly advertising expenditures and suggest that attempts to temporarily inflate stock returns via short-term adjustments to advertising are ineffective.

It Depends on Where You Search: A Comparison of Institutional and Retail Attention

We propose a direct measure of abnormal institutional investor attention (AIA) at the daily frequency using the news-searching and news-reading activity for specific stocks on Bloomberg terminals. We find AIA to be highly correlated with measures of contemporaneous institutional trading, and related to but different from other investor attention proxies, including user requests at EDGAR which are limited to specific regulatory filings. Importantly, AIA enables us to directly contrast institutional attention with retail attention measured using Google search frequency. We find that institutional attention responds more quickly to major news events, triggers more trading, and is less constrained, compared to retail attention. In sharp contrast to retail attention which results in positive and temporary price pressure, AIA facilitates permanent price adjustment and alleviates price under-reaction to news. The well-documented price drifts following both earnings announcements and analyst recommendation changes come only from announcements where institutional investors fail to pay attention, according to our measure.

Investor attention, information diffusion and industry returns

Using the monthly data for more than 1700 Australian stocks over the period from 1990 to 2009, we investigate whether industry portfolio returns predict the aggregate market. We find that a few industries significantly lead the market even controlling for well-recognized market predictors. However, unlike U.S. studies, we do not find that the ability of an industry to predict the market is closely related to its propensity to forecast economic growth. Instead, we find that the capacity of an industry to lead the market is significantly moderated by proxies for investor attention. In general, more neglected industries are more informative in leading the markets due to delayed investor attention to the information content of these industries; and the information contained in industry portfolio returns is incorporated into the market return more slowly during economic recession when investors pay less attention to the stock markets. Our research provides new empirical evidence in support of the gradual information diffusion hypothesis from a market that differs from the U.S. stock market.

Investor attention and information diffusion from analyst coverage

This study examines the impact of investor attention and analyst coverage on the diffusion of information. Using trading turnover as a proxy for investor attention, the results show that attention is crucial to the information diffusion from financial analysts. The effect of analyst coverage on improving stock synchronicity is greater when investors are more attentive. Firms with less analyst coverage rely more heavily on investor attention to assimilate information. The lead–lag effect in high and low analyst-following firms is driven by the relative more attention given to firms that have high analyst coverage.

Investor attention and stock market activity: Evidence from France

The aim of this paper is to study the influence of investor attention on the French stock market activity and volatility. Following an original way, we construct a non-standard proxy of investor attention on the basis of investors' online search behavior exclusively provided by “Google insights for search”. We find that Google search volume is a reliable proxy of investor attention. Interestingly, we show that investor attention is strongly correlated to trading volume and is a significant determinant of the stock market illiquidity and volatility. Most importantly, this evidence is maintained even after controlling for the financial crisis effect.

Investor attention for retail and institutional investors: a test on the real estate market

PurposeThe paper aims to investigate the relationship between different investor attention proxies for different types of funds (retail vs institutional ones) looking at a sample of real estate funds.Design/methodology/approachThe authors collect data about searching frequency on Google and all the news published in Italian specialized newspapers for a set of real estate funds. Following the approach proposed by Da, Engelberg and Gao, the authors construct a set of attention proxies and they compare the ranking with some summary statistics and evaluate the causality relationship among them using a Granger causality test.FindingsResults demonstrate that online search frequency is relevant for both institutional and retail funds and normally internet data are able to anticipate the news that will be published in the newspapers.Research limitations/implicationsThe analysis proposed is focused only on a small real estate market (Italy) where funds are specialized for the type of investor. A wider database can allow excluding that results achieved are biased by the specific features of the market analysed.Practical implicationsThe role of internet proxies attention measures also for institutional investors demonstrate that the managing companies offering financial instruments reserved to institutional investors should consider both channels of information – newspapers and the internet – to measure any positive or negative sign of investor attention to their products.Originality/valueThe article represents the first analysis of investor attention proxies on the real estate market and the first comparison of investor attention proxies for retail and institutional investors.

Open source information, investor attention, and asset pricing

In this paper, we advocate the search frequency of stock name in Baidu Index as a novel and direct proxy for investor attention. Firstly, empirical results show that the quantified investor attention is a desired explanatory variable for abnormal return even trading volume is considered. Secondly, the Main Board is more efficient than the ChiNext and the SME Board in the view of informational efficiency. Thirdly, investor attention exhibits strong contemporary relationship with abnormal return. Fourthly, open source information can enhance the speed of information dissemination and make the market efficient.