Hostname: page-component-7b7567c8c-jswmv Total loading time: 0 Render date: 2026-11-15T15:33:08.526Z Has data issue: false hasContentIssue false
  • English
  • Français

Retail Attention, Institutional Attention

Published online by Cambridge University Press:  12 August 2022

Hongqi Liu,
Lin PengOpen the ORCID record for Lin Peng[Opens in a new window] and
Yi Tang
Hongqi Liu
Affiliation:
School of Management and Economics, Chinese University of Hong Kong, Shenzhen hongqiliu@cuhk.edu.cn
Lin Peng*
Affiliation:
Baruch College/CUNY Zicklin School of Business
Yi Tang
Affiliation:
Fordham University Gabelli School of Business ytang@fordham.edu
*
lin.peng@baruch.cuny.edu (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the 'Save PDF' action button.

We document distinctly different clientele effects on investor attention and return responses to information. Macro news crowds out retail investor attention to firms’ earnings news by 49%. For stocks with high retail ownership, macro news dampens earnings announcement returns by 17% and substantially increases post-announcement drift, especially during high VIX periods. In contrast, macro news increases institutional investor attention to scheduled earnings announcements but not their attention to unscheduled analysts’ forecast revisions. The findings confirm the implications of rational inattention models and highlight the importance of considering clientele effects in understanding the effect of news on attention and asset prices.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 3 , May 2023, pp. 1005 - 1038
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

This article was previously circulated under the title “Investor Attention: Seasonal Patterns and Endogenous Allocations.” We thank an anonymous referee, Hendrik Bessembinder (the editor), Markus Brunnermeier, Han-Sheng Chen (discussant), Zhi Da (discussant), Xi Dong, Vita Faychuk (discussant), David Hirshleifer, Harrison Hong, Armen Hovakimian, Shiyang Huang, Yud Izhakian, Marcin Kacperczyk, Sonya Lim, Roger Loh, Atif Mian, Christopher Sims, Oleg Sokolinskiy, Siewhong Teoh, Paul Tetlock, Sheridan Titman, Laura Veldkamp, Baolian Wang, Jun Wang, Wei Xiong, Jing Zhao (discussant), Xin Zhou (discussant), and seminar participants at Baruch College, Columbia University, DePaul University, Drexel University, Princeton University, SUNY Stony Brook, UC Irvine, the 2015 Asian Bureau of Finance and Economic Research Conference, the 2015 China International Conference in Finance, the 2015 Financial Management Association Meetings, the 2016 Annual Conference on Financial Economics and Accounting, the 2016 MFA Annual Meeting, the 2018 FMA Asia Conference, and 2021 China Meeting of Econometric Society for helpful comments and suggestions. Lin Peng acknowledges the Krell research grant and the Wasserman research grant for financial support. All errors remain our own.

References

Aboody, D.; Lehavy, R.; and Trueman, B.. “Limited Attention and the Earnings Announcement Returns of Past Stock Market Winners.” Review of Accounting Studies, 15 (2010), 317–344.CrossRefGoogle Scholar
Andrei, D., and Hasler, M.. “Investor Attention and Stock Market Volatility.” Review of Financial Studies, 28 (2015), 33–72.CrossRefGoogle Scholar
Ayers, B. C.; Li, O. Z.; and Yeung, P. E.. “Investor Trading and the Post-Earnings-Announcement Drift.” Accounting Review, 86 (2011), 385–416.CrossRefGoogle Scholar
Bali, T. G.; Peng, L.; Shen, Y.; and Tang, Y.. “Liquidity Shocks and Stock Market Reactions.” Review of Financial Studies, 27 (2014), 1434–1485.CrossRefGoogle Scholar
Ball, R., and Brown, P.. “An Empirical Evaluation of Accounting Income Numbers.” Journal of Accounting Research, 6 (1968), 159–178.CrossRefGoogle Scholar
Barber, B. M., and Odean, T.. “All that Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors.” Review of Financial Studies, 21 (2008), 785–818.CrossRefGoogle Scholar
Barber, B. M.; Odean, T.; and Zhu, N.. “Do Retail Trades Move Markets?” Review of Financial Studies, 22 (2009), 151–186.CrossRefGoogle Scholar
Basu, S., and Bundick, B.. “Uncertainty Shocks in a Model of Effective Demand.” Econometrica, 85 (2017), 937–958.CrossRefGoogle Scholar
Ben-Rephael, A.; Carlin, B. I.; Da, Z.; and Israelsen, R. D.. “Information Consumption and Asset Pricing.” Journal of Finance, 76 (2021), 357–394.CrossRefGoogle Scholar
Ben-Rephael, A.; Da, Z.; and Israelsen, R. D.. “It Depends on Where You Search: Institutional Investor Attention and Underreaction to News.” Review of Financial Studies, 30 (2017), 3009–3047.CrossRefGoogle Scholar
Berkman, H., and Truong, C.. “Event Day 0? After-Hours Earnings Announcements.” Journal of Accounting Research, 47 (2009), 71–103.CrossRefGoogle Scholar
Bloom, N. “The Impact of Uncertainty Shocks.” Econometrica, 77 (2009), 623–685.Google Scholar
Bloom, N. “Fluctuations in Uncertainty.” Journal of Economic Perspectives, 28 (2014), 153–176.CrossRefGoogle Scholar
Boehmer, E.; Jones, C. M.; Zhang, X.; and Zhang, X.. “Tracking Retail Investor Activity.” Journal of Finance, 76 (2021), 2249–2305.CrossRefGoogle Scholar
Boguth, O.; Grégoire, V.; and Martineau, C.. “Shaping Expectations and Coordinating Attention: The Unintended Consequences of FOMC Press Conferences.” Journal of Financial and Quantitative Analysis, 54 (2019), 2327–2353.CrossRefGoogle Scholar
Chan, L. K. C.; Jegadeesh, N.; and Lakonishok, J.. “Momentum Strategies.” Journal of Finance, 51 (1996), 1681–1713.CrossRefGoogle Scholar
Chemmanur, T. J., and Yan, A.. “Advertising, Attention, and Stock Returns.” Quarterly Journal of Finance, 9 (2019), 1950009-1–1950009-51.CrossRefGoogle Scholar
Choi, H., and Varian, H.. “Predicting the Present with Google Trends.” Economic Record, 88 (2012), 2–9.CrossRefGoogle Scholar
Cohen, L., and Frazzini, A.. “Economic Links and Predictable Returns.” Journal of Finance, 63 (2008), 1977–2011.CrossRefGoogle Scholar
Da, Z.; Engelberg, J.; and Gao, P.. “In Search of Attention.” Journal of Finance, 66 (2011), 1461–1499.CrossRefGoogle Scholar
Da, Z.; Engelberg, J.; and Gao, P.. “The Sum of all FEARS Investor Sentiment and Asset Prices.” Review of Financial Studies, 28 (2015), 1–32.CrossRefGoogle Scholar
Daniel, K.; Grinblatt, M.; Titman, S.; and Wermers, R.. “Measuring Mutual Fund Perfomance with Characteristic-Based Benchmarks.” Journal of Finance, 52 (1997), 1035–1058.CrossRefGoogle Scholar
deHaan, E.; Lawrence, A.; and Litjens, R.. “Measurement Error in Dependent Variables in Accounting: Illustrations Using Google Ticker Search and Simulations.” Working Paper, Tilburg University (2019).CrossRefGoogle Scholar
deHaan, E.; Shevlin, T.; and Thornock, J.. “Market (in)Attention and the Strategic Scheduling and Timing of Earnings Announcements.” Journal of Accounting and Economics, 60 (2015), 36–55.CrossRefGoogle Scholar
DellaVigna, S., and Pollet, J. M.. “Investor Inattention and Friday Earnings Announcements.” Journal of Finance, 64 (2009), 709–749.CrossRefGoogle Scholar
Drake, M. S.; Roulstone, D. T.; and Thornock, J. R.. “Investor Information Demand: Evidence from Google Searches around Earnings Announcements.” Journal of Accounting Research, 50 (2012), 1001–1040.CrossRefGoogle Scholar
Drechsler, I. “Uncertainty, Time-Varying Fear, and Asset Prices.” Journal of Finance, 68 (2013), 1843–1889.CrossRefGoogle Scholar
Fang, L., and Peress, J.. “Media Coverage and the Cross-Section of Stock Returns.” Journal of Finance, 64 (2009), 2023–2052.CrossRefGoogle Scholar
Gervais, S.; Kaniel, R.; and Mingelgrin, D. H.. “The High-Volume Return Premium.” Journal of Finance, 56 (2001), 877–919.CrossRefGoogle Scholar
Ginsberg, J.; Mohebbi, M. H.; Patel, R. S.; Brammer, L.; Smolinski, M. S.; and Brilliant, L.. “Detecting Influenza Epidemics Using Search Engine Query Data.” Nature, 457 (2009), 1012–1015.CrossRefGoogle ScholarPubMed
Gleason, C. A., and Lee, C. M. C.. “Analyst Forecast Revisions and Market Price Discovery.” Accounting Review, 78 (2003), 193–225.CrossRefGoogle Scholar
Gondhi, N. “Rational Inattention, Misallocation, and the Aggregate Economy.” Working Paper, INSEAD (2021).Google Scholar
Grullon, G.; Kanatas, G.; and Weston, J. P.. “Advertising, Breath of Ownership, and Liquidity.” Review of Financial Studies, 17 (2004), 439–461.CrossRefGoogle Scholar
Hirshleifer, D.; Hou, K.; Teoh, S. H.; and Zhang, Y.. “Do Investors Overvalue Firms with Bloated Balance Sheets?” Journal of Accounting and Economics, 38 (2004), 297–331.CrossRefGoogle Scholar
Hirshleifer, D.; Hsu, P. H.; and Li, D.. “Innovative Efficiency and Stock Returns.” Journal of Financial Economics, 107 (2013), 632–654.CrossRefGoogle Scholar
Hirshleifer, D.; Lim, S. S.; and Teoh, S. H.. “Driven to Distraction: Extraneous Events and Underreaction to Earnings News.” Journal of Finance, 64 (2009), 2289–2325.CrossRefGoogle Scholar
Hirshleifer, D.; Lim, S. S.; and Teoh, S. H.. “Limited Investor Attention and Stock Market Misreactions to Accounting Information.” Review of Asset Pricing Studies, 1 (2011), 35–73.CrossRefGoogle Scholar
Hirshleifer, D., and Sheng, J.. “Macro News and Micro News: Complements or Substitutes?” Journal of Financial Economics, 145 (2021), 1006–1024.CrossRefGoogle Scholar
Hirshleifer, D., and Teoh, S. H.. “Limited Attention, Information Disclosure, and Financial Reporting.” Journal of Accounting and Economics, 36 (2003), 337–386.CrossRefGoogle Scholar
Hong, H.; Torous, W.; and Valkanov, R.. “Do Industries Lead Stock Markets?” Journal of Financial Economics, 83 (2007), 367–396.CrossRefGoogle Scholar
Hong, H., and Yu, J.. “Gone Fishin’: Seasonality in Trading Activity and Asset Prices.” Journal of Financial Markets, 12 (2009), 672–702.CrossRefGoogle Scholar
Hou, K., and Moskowitz, T. J.. “Market Frictions, Price Delay, and the Cross-Section of Expected Returns.” Review of Financial Studies, 18 (2005), 981–1020.CrossRefGoogle Scholar
Hou, K.; Peng, L.; and Xiong, W.. “Is R-Squared a Measure of Market Inefficiency?” Working Paper, Princeton University (2013).Google Scholar
Huang, S.; Huang, Y.; and Lin, T. C.. “Attention Allocation and Return co-Movement: Evidence from Repeated Natural Experiments.” Journal of Financial Economics, 132 (2019), 369–383.CrossRefGoogle Scholar
Huberman, G., and Regev, T.. “Contagious Speculation and a Cure for Cancer: A Nonevent that Made Stock Prices Soar.” Journal of Finance, 56 (2001), 387–396.CrossRefGoogle Scholar
Jiang, C. X.; Likitapiwat, T.; and McInish, T. H.. “Information Content of Earnings Announcements: Evidence from after Hours Trading.” Journal of Financial and Quantitative Analysis, 47 (2012), 1303–1330.CrossRefGoogle Scholar
Johnson, T. L., and So, E. C.. “Time Will Tell: Information in the Timing of Scheduled Earnings News.” Journal of Financial and Quantitative Analysis, 53 (2018), 2431–2464.CrossRefGoogle Scholar
Kacperczyk, M.; Van Nieuwerburgh, S.; and Veldkamp, L.. “Time-Varying Fund Manager Skill.” Journal of Finance, 69 (2014), 1455–1484.CrossRefGoogle Scholar
Kacperczyk, M.; Van Nieuwerburgh, S.; and Veldkamp, L.. “A Rational Theory of Mutual Funds’ Attention Allocation.” Econometrica, 84 (2016), 571–626.CrossRefGoogle Scholar
Kelley, E. K., and Tetlock, P. C.. “How Wise are Crowds? Insights from Retail Orders and Stock Returns.” Journal of Finance, 68 (2013), 1229–1265.CrossRefGoogle Scholar
Kelley, E. K., and Tetlock, P. C.. “Retail Short Selling and Stock Prices.” Review of Financial Studies, 30 (2017), 801–834.CrossRefGoogle Scholar
Kothari, S. P. “Capital Markets Research in Accounting.” Journal of Accounting and Economics, 31 (2001), 105–231.CrossRefGoogle Scholar
Kottimukkalur, B. “Attention to Market Information and Underreaction to Earnings on Market Moving Days.” Journal of Financial and Quantitative Analysis, 54 (2019), 2493–2516.CrossRefGoogle Scholar
Livnat, J., and Mendenhall, R. R.. “Comparing the Post-Earnings Announcement Drift for Surprises Calculated from Analyst and Time Series Forecasts.” Journal of Accounting Research, 44 (2006), 177–205.CrossRefGoogle Scholar
Loh, R. K. “Investor Inattention and the Underreaction to Stock Recommendations.” Financial Management, 39 (2010), 1223–1251.CrossRefGoogle Scholar
Lou, D. “Attracting Investor Attention through Advertising.” Review of Financial Studies, 27 (2014), 1797–1829.CrossRefGoogle Scholar
Mann, H. B., and Whitney, D. R.. “On a Test of Whether One of Two Random Variables is Stochastically Larger than the Other.” Annals of Mathematical Statistics, 18 (1947), 50–60.CrossRefGoogle Scholar
Michaely, R.; Rubin, A.; and Vedrashko, A.. “Corporate Governance and the Timing of Earnings Announcements.” Review of Finance, 18 (2014), 2003–2044.CrossRefGoogle Scholar
Mondria, J. “Portfolio Choice, Attention Allocation, and Price Comovement.” Journal of Economic Theory, 145 (2010), 1837–1864.CrossRefGoogle Scholar
Patell, J. M., and Wolfson, M. A.. “Good News, Bad News, and the Intraday Timing of Corporate Disclosures.” Accounting Review, 57 (1982), 509–527.Google Scholar
Peng, L. “Learning with Information Capacity Constraints.” Journal of Financial and Quantitative Analysis, 40 (2005), 307–329.CrossRefGoogle Scholar
Peng, L., and Xiong, W.. “Investor Attention, Overconfidence and Category Learning.” Journal of Financial Economics, 80 (2006), 563–602.CrossRefGoogle Scholar
Peng, L.; Xiong, W.; and Bollerslev, T.. “Investor Attention and Time-Varying Comovements.” European Financial Management, 13 (2007), 394–422.CrossRefGoogle Scholar
Savor, P., and Wilson, M.. “How Much do Investors Care about Macroeconomic Risk? Evidence from Scheduled Economic Announcements.” Journal of Financial and Quantitative Analysis, 48 (2013), 343–375.CrossRefGoogle Scholar
Savor, P., and Wilson, M.. “Asset Pricing: A Tale of Two Days.” Journal of Financial Economics, 113 (2014), 171–201.CrossRefGoogle Scholar
Savor, P., and Wilson, M.. “Earnings Announcements and Systematic Risk.” Journal of Finance, 71 (2016), 83–138.CrossRefGoogle Scholar
Seasholes, M. S., and Wu, G.. “Predictable Behavior, Profits, and Attention.” Journal of Empirical Finance, 14 (2007), 590–610.CrossRefGoogle Scholar
Segal, B., and Segal, D.. “Are Managers Strategic in Reporting Non-earnings News? Evidence on Timing and News Bundling.” Review of Accounting Studies, 21 (2016), 1203–1244.CrossRefGoogle Scholar
Sims, C. A. “Implications of Rational Inattention.” Journal of Monetary Economics, 50 (2003), 665–690.CrossRefGoogle Scholar
Sims, C. A. “Rational Inattention: Beyond the LQ Case.” American Economic Association, 96 (2006), 158–163.Google Scholar
Stickel, S. “Common Stock Returns Surrounding Earnings Forecast Revisions: More Puzzling Evidence.” Accounting Review, 79 (1991), 967–1010.Google Scholar
Van Nieuwerburgh, S., and Veldkamp, L.. “Information Acquisition and Under-Diversification.” Review of Economic Studies, 77 (2010), 779–805.CrossRefGoogle Scholar
Yuan, Y. “Market-Wide Attention, Trading, and Stock Returns.” Journal of Financial Economics, 116 (2015), 548–564.CrossRefGoogle Scholar
Supplementary material: PDF

Liu et al. supplementary material

Liu et al. supplementary material

Download Liu et al. supplementary material(PDF)
PDF 397.5 KB