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Investor Inattention and the Market Impact of Summary Statistics

  • Thomas Gilbert
  • Shimon Kogan
  • Lars Lochstoer
  • Ataman Ozyildirim

Investors with limited attention have an incentive to focus on summary statistics rather than individual pieces of information. We use this observation to form a test of the impact of limited attention on the aggregate stock market. We examine the market response to a macroeconomic release that is purely a summary statistic, the U.S. Leading Economic Index (LEI). Consistent with the limited attention hypothesis, we show that the LEI announcement has an impact on aggregate stock returns, return volatility, and trading volume. Furthermore, we find evidence that the response to the LEI is higher for stocks which inattentive investors are more likely to trade.

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File URL: https://student-3k.tepper.cmu.edu/gsiadoc/wp/2006-E24.pdf
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Paper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 2006-E24.

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Date of creation: Nov 2007
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Handle: RePEc:cmu:gsiawp:197052381
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Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890

Web page: http://www.tepper.cmu.edu/

Order Information: Web: http://student-3k.tepper.cmu.edu/gsiadoc/GSIA_WP.asp

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