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Limited investor attention and biased reactions to information: Evidence from the COVID-19 pandemic

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  • Xu, Liao
  • Zhang, Xuan
  • Zhao, Jing

Abstract

We find that the COVID-19 pandemic increases (decreases) stock return sensitivity to market-wide (firm-specific) news, which is associated with return reversals (delayed reactions). These results are consistent with limited investor attention and investors paying heightened (reduced) attention to macro (micro) information after the outbreak. There are more biased reactions when the epidemic spread is higher, to good news than bad news, for firms headquartered in pandemic epicenters, and for larger stocks. We also find higher (lower) imbalanced trading, information flow, and price efficiency associated with market-wide (firm-specific) news during the pandemic.

Suggested Citation

  • Xu, Liao & Zhang, Xuan & Zhao, Jing, 2023. "Limited investor attention and biased reactions to information: Evidence from the COVID-19 pandemic," Journal of Financial Markets, Elsevier, vol. 62(C).
    • Handle: RePEc:eee:finmar:v:62:y:2023:i:c:s1386418122000490
    DOI: 10.1016/j.finmar.2022.100757
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    1. Xu, Liao & Xue, Mingqi & Zhang, Xuan & Zhao, Yang, 2023. "Heterogeneously informed trading and the stock market efficiency during the COVID-19 pandemic," International Review of Financial Analysis, Elsevier, vol. 87(C).

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    More about this item

    Keywords

    COVID-19 pandemic; Limited investor attention; Market reaction; Negativity bias; News release;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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