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Investor attention factors and stock returns: Evidence from China

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  • Dong, Dayong
  • Wu, Keke
  • Fang, Jianchun
  • Gozgor, Giray
  • Yan, Cheng

Abstract

We provide a theoretical model in which investor attention affects the cross-section of equity returns. Based on the reaction of three types of investors to market signals, we derive a negative (positive) correlation between the proportion of continuous attentive (new attentive) investors and stock returns. We also provide empirical support for the model by constructing two asset pricing factors that capture both the level and change in investor attention. We assess their ability to explain the cross-section of equity returns in China's stock market. Our attention-augmented models outperform baseline models in explaining a broad range of return anomalies.

Suggested Citation

  • Dong, Dayong & Wu, Keke & Fang, Jianchun & Gozgor, Giray & Yan, Cheng, 2022. "Investor attention factors and stock returns: Evidence from China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:intfin:v:77:y:2022:i:c:s1042443121002031
    DOI: 10.1016/j.intfin.2021.101499
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    More about this item

    Keywords

    Investor attention; Equity returns; Factor; Anomaly; China;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • 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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