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Do local and non-local retail investor attention impact stock returns differently?

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  • Yuan, Ying
  • Fan, Xiaoqian
  • Li, Yiou

Abstract

In view of the different behavior of local and non-local individual investors, the impacts of local and non-local retail attention on stock returns should be separately investigated. However, the literature on this topic is surprisingly scarce. This paper investigates and compares the return predictability of local and non-local retail investor attention. We propose two direct measures, which consider the geographic information of retail attention, to quantify local and non-local retail attention. The empirical study shows that the impact of local retail attention is consistent with the information hypothesis, while that of the non-local retail attention is in line with the attention-induced price pressure hypothesis. We further explore how two relevant factors, media coverage and investor sophistication level, influence the predictive power of local and non-local attention. We find that the predictive power of non-local attention is stronger for the firms that attract more sophisticated non-local investors. In contrast, the predictive power of local attention is not affected by the sophistication level of local investors. As a major information acquisition mechanism, media plays a role in the return predictability of both non-local and local retail attention. Based on these findings, important practical implications for practitioners, regulators, and researchers are unveiled.

Suggested Citation

  • Yuan, Ying & Fan, Xiaoqian & Li, Yiou, 2022. "Do local and non-local retail investor attention impact stock returns differently?," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:pacfin:v:74:y:2022:i:c:s0927538x22001020
    DOI: 10.1016/j.pacfin.2022.101807
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    More about this item

    Keywords

    Heterogeneity of retail attention; Return predictability; Locality; Baidu search volume; Geographic information;
    All these keywords.

    JEL classification:

    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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