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Investor attention, aggregate limit-hits, and stock returns

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  • Cai, Haidong
  • Jiang, Ying
  • Liu, Xiaoquan

Abstract

We develop a simple measure of investor attention by aggregating the number of days that a stock hits the upper or lower limit on a monthly basis. This attention proxy describes investor trading behavior and contains information of future stock returns. Using data from the Chinese equity market from 2002 to 2017, we provide extensive evidence that the investor attention captured by our measure negatively predicts cross-sectional stock returns, and the long–short trading strategy based on this attention measure produces significant economic value. We argue that the attention-motivated trading is the main cause behind the return predictability of aggregate limit-hits.

Suggested Citation

  • Cai, Haidong & Jiang, Ying & Liu, Xiaoquan, 2022. "Investor attention, aggregate limit-hits, and stock returns," International Review of Financial Analysis, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:finana:v:83:y:2022:i:c:s1057521922002216
    DOI: 10.1016/j.irfa.2022.102265
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    More about this item

    Keywords

    Attention shock; Individual investors; Behavioral biases; Chinese stock market;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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