Author
Abstract
Purpose - – Based on the theory of limited attention, the purpose of this paper is to investigate whether the investor behavior is influenced by attention, using the sample from earning announcement in China. Design/methodology/approach - – Empirical research using the earning announcement data in China. Specifically, the authors use the sample from 2005 to 2010 in listed A-share firms with earning announcements in Shanghai and Shenzhen stock market. Panel data regressions are used with Newey and West (1987) to correct for the potential heteroskedasticity and autocorrelation. The empirical results strongly support the hypothesis that limited attention impact investor behavior in China. Findings - – The authors find that the immediate price and volume reaction to earning surprise is much weaker and post-announcement drift is much stronger when a greater number of firms make earning announcements on the same day. The authors explain these findings mainly from behavioral bias. When investors process multiple information signals immediately or perform multiple objects simultaneously, their attention will be allocated selectively due to cognitive constraints. Such limited attention causes severe underreaction to immediate earnings announcement, therefore leads to mispricing abnormal related to public accounting information. In the long-run, the market adjusted and there is post-announcement drift. Research limitations/implications - – Consistent with Hirshleiferet al.(2009), the findings in this study indicate that individual investors’ behaviors are influenced by their limited attention in China. The results are different from Yu and Wang (2010) conclusions that same-day concentrated announcement help investors and facilitate information dissemination in China. The findings are explained by the investor distraction hypothesis proposed by Hirshleiferet al.(2009) that investor distraction causes market underreaction. Practical implications - – The arrival of simultaneously extraneous earning information cause market prices and trading volume to react slowly to the relevant news about a firm because competing information signals distract investor from a given firm, causing market price to underreact to relevant news. These finding help us understand investor behavior and the impact of limited attention on security market. Social implications - – Investor limited attention not only affects their stock-buying behavior, but also has an important impact on the efficiency of security market. Specifically, limited attention drive immediate underreaction to earning announcement and the post-earning announcement drift, especially when a greater number of same-day earning announcements are made by other firms. Originality/value - – Limited attention affects security market in China.
Suggested Citation
Xunan Feng & Na Hu, 2014.
"Are individual investors affected by attention?,"
China Finance Review International, Emerald Group Publishing Limited, vol. 4(3), pages 289-304, August.
Handle:
RePEc:eme:cfripp:v:4:y:2014:i:3:p:289-304
DOI: 10.1108/CFRI-09-2013-0114
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Cited by:
- Neenu C & T Mohamed Nishad, 2022.
"Behavior of Financial Markets Around News Announcements: A Review Based on Bibliometric Analysis of Scientific Fields,"
The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 14(2), pages 143-172, December.
- Syed Aliya Zahera & Rohit Bansal, 2018.
"Do investors exhibit behavioral biases in investment decision making? A systematic review,"
Qualitative Research in Financial Markets, Emerald Group Publishing Limited, vol. 10(2), pages 210-251, May.
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