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Investor attention and the risk-return trade-off

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  • Lee, Eun Jung
  • Lee, Yu Kyung
  • Kim, Ryumi

Abstract

Previous empirical studies find a negative and significant relation between risk measures and expected future stock returns. Using four risk measures, we document that the negative risk-return relation is more pronounced among firms that receive high levels of attention from investors, while a standard positive risk-return relation holds among stocks to which investors pay little attention. Regardless of our proxy for risk, we find that the magnitude and statistical significance of the risk-related puzzle monotonically decreases as we move from high to low levels of investor attention. These findings suggest that investor attention may play a central role in risk-related anomalies.

Suggested Citation

  • Lee, Eun Jung & Lee, Yu Kyung & Kim, Ryumi, 2022. "Investor attention and the risk-return trade-off," Finance Research Letters, Elsevier, vol. 47(PA).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pa:s1544612321004906
    DOI: 10.1016/j.frl.2021.102524
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    More about this item

    Keywords

    Investor attention; Risk-return tradeoff; Risk; Risk-return trade-off;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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