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Investor Inattention and the Market Impact of Summary Statistics

  • Thomas Gilbert

    ()

    (Foster School of Business, University of Washington, Seattle, Washington 98195)

  • Shimon Kogan

    ()

    (McCombs School of Business, University of Texas at Austin, Austin, Texas 78712)

  • Lars Lochstoer

    ()

    (Graduate School of Business, Columbia University, New York, New York 10027)

  • Ataman Ozyildirim

    ()

    (The Conference Board, New York, New York 10022)

We show that U.S. stock and Treasury futures prices respond sharply to recurring stale information releases. In particular, we identify a unique macroeconomic series--the U.S. Leading Economic Index ® (LEI)--which is released monthly and constructed as a summary statistic of previously released inputs. We show that a front-running strategy that trades S&P 500 futures in the direction of the announcement a day before its release and then trades in the opposite direction of the announcement following its release generates an average annual return of close to 8%. These patterns are more pronounced for high beta stocks, for stocks that are more difficult to arbitrage, and during times when investors' sensitivity to firm-specific stale information is high. Treasury futures exhibit similar, albeit less pronounced, price patterns. Other measures of information arrival, such as price volatility and volume, spike following the release. These empirical findings suggest that some investors are inattentive to the stale nature of the information included in the LEI releases, instead interpreting it as new information, and thereby causing temporary yet significant mispricing. This paper was accepted by Brad Barber, Teck Ho, and Terrance Odean, special issue editors.

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File URL: http://dx.doi.org/10.1287/mnsc.1110.1475
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Article provided by INFORMS in its journal Management Science.

Volume (Year): 58 (2012)
Issue (Month): 2 (February)
Pages: 336-350

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Handle: RePEc:inm:ormnsc:v:58:y:2012:i:2:p:336-350
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  8. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2002. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange?," Center for Financial Institutions Working Papers 02-23, Wharton School Center for Financial Institutions, University of Pennsylvania.
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