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The power of attention: examining the roles of institutional investor and macroeconomic news attention in shaping share liquidity

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  • Garcia, John

Abstract

This study examines the joint influence of institutional investor attention and macroeconomic news attention on firm-level share liquidity, revealing distinct effects across heterogeneous market segments. Analyzing 1.23 million firm-day observations from 2468 U.S. firms (2015–2020), I combine Bloomberg terminal readership data—a proxy for institutional investor attention—with a novel macroeconomic attention index derived from a principal-component analysis of coverage in The Wall Street Journal and The New York Times. The results reveal significant heterogeneity: institutional investor attention reduces liquidity in information-opaque settings, widening spreads for low-institutional ownership and small-cap firms, while modestly improving liquidity for transparent large-cap firms, where attention serves to validate rather than signal private information. Macroeconomic news attention itself widens spreads while simultaneously dampens the effect of institutional investor attention, consistent with a cognitive substitution channel. These effects intensify during market downturns, highlighting the fragility of liquidity when attention is scarce. Propensity score matching, difference-in-differences tests, and alternative liquidity measures confirm the results. The findings provide a unified framework that reconciles previous evidence and offers actionable insights for traders' execution timing, market makers' spread calibration, and regulators' detection of liquidity fragility during periods of macroeconomic stress.

Suggested Citation

  • Garcia, John, 2025. "The power of attention: examining the roles of institutional investor and macroeconomic news attention in shaping share liquidity," Global Finance Journal, Elsevier, vol. 67(C).
    • Handle: RePEc:eee:glofin:v:67:y:2025:i:c:s1044028325000870
    DOI: 10.1016/j.gfj.2025.101160
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    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
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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