Jiang, L., Liu, J., Peng, L. and Wang, B.

Investor Attention and Asset Pricing Anomalies

Review of Finance, forthcoming

: rfab032

Abstract: We investigate the relationship between investor attention and financial market anomalies. We find that anomaly returns tend to be higher following high-attention days. The result is robust after controlling for the effect of news and in a natural experiment setting in which a stock market regulation and rounding errors generate exogenous variations in attention. An analysis of order imbalances suggests that large traders trade on anomaly signals more aggressively upon observing higher attention. We discuss the extent to which the findings are driven by inattention-driven underreaction, bias amplification, or coordinated arbitrage mechanisms, thereby providing insight into the understanding of anomalies.

Keywords: Investor attention, Anomaly, Price limit, Coordination, Synchronicity risk

JEL Codes: G12, G15, G40

Author links:

Publisher's Link: https://doi.org/10.1093/rof/rfab032