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Investor Inattention and the Underreaction to Stock Recommendations

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  • Roger K. Loh
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    Abstract

    "Investors' reaction to stock recommendations is often incomplete so that there is a predictable postrecommendation drift. I investigate investor inattention as a plausible explanation for this drift by using prior turnover as a proxy for attention. I find that low-attention stocks react less to stock recommendations than high-attention stocks around the three-day event window. Subsequently, the recommendation drift of firms with low attention is more than double in magnitude when compared to firms with high attention. Similar conclusions are reached with alternative proxies for attention. The evidence supports investor inattention as a source of the stock recommendation drift." Copyright (c) 2010 Financial Management Association International.

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    Bibliographic Info

    Article provided by Financial Management Association International in its journal Financial Management.

    Volume (Year): 39 (2010)
    Issue (Month): 3 (09)
    Pages: 1223-1252

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    Handle: RePEc:bla:finmgt:v:39:y:2010:i:3:p:1223-1252

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    Cited by:
    1. Rongsheng Shi & Zhi Xu & Zhengrong Chen & Jing Huang, 2012. "Does attention affect individual investors' investment return?," China Finance Review International, Emerald Group Publishing, vol. 2(2), pages 143-162, April.

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