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When does attention matter? The effect of investor attention on stock market volatility around news releases
Journal
International Review of Financial Analysis
ISSN
1057-5219
Type
journal article
Date Issued
2022-04-20
Author(s)
Abstract
We empirically investigate how retail and institutional investor attention is related to the way stock markets process information. With a focus on 360 US stocks in the S&P 500 universe, our results show that higher retail investors’ attention around news releases increases the post-announcement stock return volatility, whereas in-stitutional investor attention has a small but negative impact on volatility on days following news releases on average over the cross-section of companies. These find-ings are in line with the hypotheses that attention of retail investors slows price-adjustments to new information and attention of institutional investors results in the opposite reaction. We show that these e˙ects are heterogeneous in the type of news and the topic of the information being released. A portfolio allocation ap-plication highlights that these results are not only statistically significant but also sizeable in economic terms and can lead to an overperformance as large as dozens of basis points.
Project(s)
SentiVol: Sentiment Analysis and Bayesian Model Averaging for Volatility Prediction
Language
English
HSG Classification
contribution to scientific community
HSG Profile Area
SEPS - Quantitative Economic Methods
Refereed
Yes
Volume
82
Number
July 2022
Division(s)
Contact Email Address
francesco.audrino@unisg.ch
Eprints ID
266151