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Does Investor Attention Affect Stock Trading and Returns? Evidence from Publicly Listed Firms in China

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  • Dan Yang
  • Tingyu Ma
  • Yuetang Wang
  • Guojun Wang

Abstract

Limited attention is an inevitable outcome of voluminous information. Investors facing a large number of stocks can only focus on a few and endeavor to have access to in-depth knowledge. Since the retrieved knowledge would affect investors’ decisions, investor attention becomes a factor in affecting stock returns and trading volumes. Through using 890,840 firm-week observations of Chinese listed firms between 2011 and 2018 as a sample, we document that investor attention, measured by abnormal Baidu search volume index (ASVI), is positively associated with contemporaneous stock returns but with a complete reversal in the subsequent period; and ASVI exhibits a positive link with trading volumes without a subsequent reversal, but its predictable ability becomes weaker in subsequent weeks. The effect of ASVI is pronounced for the ChiNext market and firms with higher level of financial transparency. We further find investor attention has been driven by five corporate events including earnings announcements, management forecasts, financial analysts following, mergers and acquisitions and dividend payout. This paper contributes to the theory of limited attention through using a direct measure of attention, providing evidence on its economic consequences in the Chinese stock market and exploring specific events that drive investor attention.

Suggested Citation

  • Dan Yang & Tingyu Ma & Yuetang Wang & Guojun Wang, 2021. "Does Investor Attention Affect Stock Trading and Returns? Evidence from Publicly Listed Firms in China," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 22(4), pages 368-381, October.
    • Handle: RePEc:taf:hbhfxx:v:22:y:2021:i:4:p:368-381
    DOI: 10.1080/15427560.2020.1785469
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    Cited by:

    1. Weihan Zhao & Jianing Zhang, 2024. "Investor Attention and Stock Liquidity in the Chinese Market," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 30(1), pages 65-82, February.
    2. Xu, Yingying & Shao, Xuefeng & Tanasescu, Cristina, 2024. "How are artificial intelligence, carbon market, and energy sector connected? A systematic analysis of time-frequency spillovers," Energy Economics, Elsevier, vol. 132(C).
    3. Chen, Zhongdong & Craig, Karen Ann, 2023. "Active attention, retail investor base, and stock returns," Journal of Behavioral and Experimental Finance, Elsevier, vol. 39(C).
    4. Dunbar, Kwamie & Treku, Daniel N., 2024. "Examining the impact of a central bank digital currency on the access to banking," International Review of Financial Analysis, Elsevier, vol. 93(C).
    5. Zhenjie Wang & Jiewei Zhang & Hafeez Ullah, 2023. "Exploring the Multidimensional Perspective of Retail Investors’ Attention: The Mediating Influence of Corporate Governance and Information Disclosure on Corporate Environmental Performance in China," Sustainability, MDPI, vol. 15(15), pages 1-33, August.

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