Negativity Bias in Attention Allocation: Retail Investors’ Reaction to Stock Returns

Abstract

We argue that negative stock market performance attracts more attention from retail investors than comparable positive performance. Specifically, we test and confirm the hypothesis that retail investors pay more attention to negative extreme returns than positive ones. We present a measure of attention at the aggregate and company-specific levels using Google's internet search volume indexes. These measures correlate with, but are different from, existing proxies of attention. Our empirical results strongly support the position that investors display a negativity bias in attention allocation with respect to extreme stock returns. Across all specifications, lagged negative extreme returns are stronger predictors of high attention at the individualstock and stock market levels than positive ones.

Saddled with Attention: Overreaction to Bankruptcy Filings

“…In untabulated results, we also consider the [−5, −2] and [2, 5] windows and find results consistent with our findings but with lower statistical significance © 2018. International Review of Finance Ltd. 2018 …”

“…We need data to identify bankruptcy filings, measure attention with search volume from Google, obtain news stories related to each bankruptcy filing, and identify stock prices and 4 See, among others, Ginsberg et al (2009), Vosen and Schmidt (2011), Shoi and Varian (2012), and Reyes et al (2018). 5 See, among others, Kristoufek (2013), Campos et al (2017) and Reyes (2018). accounting variables for each case in our sample. Then, this section describes the sample construction, its characteristics, and bivariate correlations between the key variables.…”

“…In the Appendix S1, we present additional robustness checks, including results using matched firm benchmark returns in Section C, and regression models using panel data in Section D © 2018. International Review of Finance Ltd. 2018 …”

Limited attention and M&A announcements

“…Los tópicos pueden estar relacionados con economía, finanzas, educación, etc. El artículo ilustra cómo construir índices de atención utilizando herramientas gratuitas de Google y es base para el desarrollo de los artículos [2,3,4,5,6]. El artículo [1] ha sido aceptado para publicación en el Journal ISI Social Science Quarterly.…”

“…El artículo [2] profundiza en el tema del artículo [1] y valida el volumen de búsqueda de Google como una medida de atención en el mercado accionario. El artículo [2] propone metodológicamente cómo construir índices agregados de atención en base a volúmenes de búsqueda de Google en este contexto específico. Además, muestra que el volumen de búsqueda está correlacionado con eventos importantes del mercado accionario que teóricamente deberían atraer la atención de los inversionistas no institucionales.…”