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Investor attention is a risk pricing factor? Evidence from Chinese investors for self-selected stocks

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  • Dayong Dong
  • Keke Wu

Abstract

Purpose - The purpose of this paper is to empirically examine whether investor attention is a significant risk pricing factor. Design/methodology/approach - Using investor attention data from Eastmoney.com, which provides for each stock the number of investors whose watch list includes that stock on a daily basis, this paper constructs a “heat” factor based on the change in investor attention and a “market exposure” factor based on the proportion of attention on a given stock over the attention to all stocks. Using the Fama−MacBeth two-step regression and a rolling analysis, this study examines the ability of the investor attention factor to explain market returns. Findings - The empirical results show that there exists a risk premium for the “heat” factor and “market exposure” factor that is significantly different from zero. This finding shows that investor attention can systematically influence stock returns, making it a significant risk pricing factor. Practical implications - This paper’s research on the risk pricing factors of investor attention can help investors to rationally build investment portfolios, avoid risks and form a sound investment concept, which will further reveal the information recognition mechanism of the capital market and standardize the information disclosure behavior of listed companies. Originality/value - This paper provides evidence that investor attention is a risk pricing factor for the stock market. There are “heat” factors and “market exposure” factors in the Chinese stock market that significantly affect the purchasing behavior of individual investors.

Suggested Citation

  • Dayong Dong & Keke Wu, 2019. "Investor attention is a risk pricing factor? Evidence from Chinese investors for self-selected stocks," China Finance Review International, Emerald Group Publishing Limited, vol. 10(1), pages 95-112, March.
    • Handle: RePEc:eme:cfripp:cfri-11-2017-0218
    DOI: 10.1108/CFRI-11-2017-0218
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    Citations

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    Cited by:

    1. Huang, Yichu & Fan, Yaoyao, 2022. "Risk along the supply chain: Geographic proximity and corporate risk taking," Finance Research Letters, Elsevier, vol. 50(C).
    2. Liu, Chunyuan & Han, Liyan & Chu, Gang, 2023. "The effect of overnight corporate announcements on price discovery," Finance Research Letters, Elsevier, vol. 53(C).
    3. Huang, Tao & Zhang, Xueyong, 2022. "Industry-level media tone and the cross-section of stock returns," International Review of Economics & Finance, Elsevier, vol. 77(C), pages 59-77.
    4. Yang, Xiaolan & Zhu, Yu & Cheng, Teng Yuan, 2020. "How the individual investors took on big data: The effect of panic from the internet stock message boards on stock price crash," Pacific-Basin Finance Journal, Elsevier, vol. 59(C).
    5. Chen, Xing & Wu, Chongfeng, 2022. "Retail investor attention and information asymmetry: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 75(C).

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