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Too many irons in the fire: The impact of limited institutional attention on market microstructure and efficiency

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  • Jiang, Hao
  • Ma, Yong
  • Wang, Tianyang

Abstract

This paper presents an in-depth exploration, both empirically and theoretically, of how institutional attention impacts market microstructure. Our innovative theoretical model incorporates an information processing constraint into the dynamic strategic trading framework. The model predicts a trade-off where increased institutional attention enhances price informativeness at the expense of market liquidity, and suggests that the unmonetized portion of institutional investors’ information advantage significantly influences the effect of public information about an asset’s fundamental value on market microstructure. Additionally, our findings are substantiated through rigorous empirical analysis.

Suggested Citation

  • Jiang, Hao & Ma, Yong & Wang, Tianyang, 2025. "Too many irons in the fire: The impact of limited institutional attention on market microstructure and efficiency," Journal of Financial Markets, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:finmar:v:73:y:2025:i:c:s1386418125000096
    DOI: 10.1016/j.finmar.2025.100969
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    More about this item

    Keywords

    Institutional attention; Market microstructure; Market efficiency; Strategic trading;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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