Investor Attention and Stock Returns

By Jian Chen, Guohao Tang, Jiaquan Yao, Guofu Zhou. Journal of Financial and Quantitative Analysis, 2020

161 citations recorded by the source corpus.

Abstract We propose an investor attention index based on proxies in the literature and find that it predicts the stock market risk premium significantly, both in sample and out of sample, whereas every proxy individually has little predictive power. The index is extracted using partial least squares, but the results are similar by the scaled principal component analysis. Moreover, the index can deliver sizable economic gains for mean-variance investors in asset allocation. The predictive power of the investor attention index stems primarily from the reversal of temporary price pressure and from the stronger forecasting ability for high-variance stocks.

Subfields: Economics and Econometrics, Finance, Management Science and Operations Research

View Paper: https://www.semanticscholar.org/paper/979343a4f3c1eb637949f7df5a1bfe97da0b9abb