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Effects of limited attention on investors' trading behavior: Evidence from online ranking data

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  • Choi, Sujung
  • Choi, Woon Youl

Abstract

In this study, we provide empirical evidence that investors' limited attention affects security prices and trading volume in the short run. Using a unique dataset that was hand-collected from an Internet portal in Korea, we directly measure investor attention on individual stocks based on the rank information of the top 30 most frequently discussed stocks on the online stock message board. Investor attention is associated with significant increases in abnormal trading volume on the day that a stock is actively discussed online. Interestingly, less sophisticated individual investors continue buying more attention-grabbing stocks for a week after the active discussions of those stocks. Regarding stock return performance, whether investors are attentive to a stock significantly predicts next-day stock performance. However, the effect of attention on the stock returns is short-lived and disappears within two days, implying that the increase in stock prices is related to a behavioral bias rather than fundamental information.

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  • Choi, Sujung & Choi, Woon Youl, 2019. "Effects of limited attention on investors' trading behavior: Evidence from online ranking data," Pacific-Basin Finance Journal, Elsevier, vol. 56(C), pages 273-289.
    • Handle: RePEc:eee:pacfin:v:56:y:2019:i:c:p:273-289
    DOI: 10.1016/j.pacfin.2019.06.007
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