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Investor Attention and Asset Pricing Anomalies
[Synchronization risk and delayed arbitrage]

Author

Listed:
  • Lei Jiang
  • Jinyu Liu
  • Lin Peng
  • Baolian Wang

Abstract

We investigate the relationship between investor attention and financial market anomalies. We find that anomaly returns tend to be higher following high-attention days. The result is robust after controlling for the effect of news and in a natural experiment setting in which a stock market regulation and rounding errors generate exogenous variations in attention. An analysis of order imbalances suggests that large traders trade on anomaly signals more aggressively upon observing higher attention. We discuss the extent to which the findings are driven by inattention-driven underreaction, bias amplification, or coordinated arbitrage mechanisms, thereby providing insight into the understanding of anomalies.

Suggested Citation

  • Lei Jiang & Jinyu Liu & Lin Peng & Baolian Wang, 2022. "Investor Attention and Asset Pricing Anomalies [Synchronization risk and delayed arbitrage]," Review of Finance, European Finance Association, vol. 26(3), pages 563-593.
    • Handle: RePEc:oup:revfin:v:26:y:2022:i:3:p:563-593.
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    File URL: http://hdl.handle.net/10.1093/rof/rfab032
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    References listed on IDEAS

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    1. Atilgan, Yigit & Bali, Turan G. & Demirtas, K. Ozgur & Gunaydin, A. Doruk, 2020. "Left-tail momentum: Underreaction to bad news, costly arbitrage and equity returns," Journal of Financial Economics, Elsevier, vol. 135(3), pages 725-753.
    2. Abreu, Dilip & Brunnermeier, Markus K., 2002. "Synchronization risk and delayed arbitrage," Journal of Financial Economics, Elsevier, vol. 66(2-3), pages 341-360.
    3. Baker, Malcolm & Wurgler, Jeffrey, 2004. "Appearing and disappearing dividends: The link to catering incentives," Journal of Financial Economics, Elsevier, vol. 73(2), pages 271-288, August.
    4. Andrew Ang & Robert J. Hodrick & Yuhang Xing & Xiaoyan Zhang, 2006. "The Cross‐Section of Volatility and Expected Returns," Journal of Finance, American Finance Association, vol. 61(1), pages 259-299, February.
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    Citations

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    Cited by:

    1. Shi, Yongdong & Wang, Haomiao & Xia, Yu & Zhen, Hongxian, 2023. "Mispricing and anomalies in China," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    2. Li, Zhiyong & Wan, Yifan & Wang, Tianyi & Yu, Mei, 2023. "Factor-timing in the Chinese factor zoo: The role of economic policy uncertainty," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 85(C).
    3. Zhang, Teng & Xu, Zhiwei, 2023. "The informational feedback effect of stock prices on corporate investments: A comparison of new energy firms and traditional energy firms in China," Energy Economics, Elsevier, vol. 127(PA).

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    More about this item

    Keywords

    Investor attention; Anomaly; Price limit; Coordination; Synchronicity risk;
    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
    • G40 - Financial Economics - - Behavioral Finance - - - General

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