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Mood, attention, and household trading: Evidence from terrorist attacks

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  • Wang, Albert Y.
  • Young, Michael

Abstract

In response to terrorism, households reduce their trading activity and equity ownership. While the decline in the net value of trades is consistent with increasing risk aversion, reduced Google search volumes, lower aggregate attention indices, and fewer purchases of newsworthy stocks suggest that investors pay less attention to the financial markets after attacks. Additional tests indicate that investor inattention is driven by distress-induced avoidance rather than distraction, and the effect is limited to retail investors. Finally, reduced retail trading after attacks leads to a decline in stock liquidity.

Suggested Citation

  • Wang, Albert Y. & Young, Michael, 2023. "Mood, attention, and household trading: Evidence from terrorist attacks," Journal of Financial Markets, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:finmar:v:66:y:2023:i:c:s1386418123000563
    DOI: 10.1016/j.finmar.2023.100858
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    More about this item

    Keywords

    Terrorism; Retail trading; Household finance; Attention; Anxiety;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War

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