Investor Attention and Asset Pricing Anomalies
Lei Jiang, Jinyu Liu, Lin Peng, Baolian Wang
Review of Finance, Volume 26, Issue 3, May 2022, Pages 563–593, https://doi.org/10.1093/rof/rfab032
In this paper, Jiang, Liu, Peng, and Wang investigate the relationship between investor attention and financial market anomalies. They study 17 widely studied anomalies and find that anomaly returns tend to be higher following high-attention days. The result is robust after controlling for the effect of news and in a natural experiment setting in which a stock market regulation and rounding errors generate exogenous variations in attention. An analysis of order imbalances suggests that large traders trade on anomaly signals more aggressively upon observing higher attention. They discuss the extent to which the findings are driven by inattention-driven underreaction, bias amplification, or coordinated arbitrage mechanisms, thereby providing insight into the understanding of anomalies. Their study makes several contributions. First, they contribute to the recent literature on the common drivers of anomalies. Second, they also document that the majority of the anomalies studied in the US hold in the Chinese data, providing out-of-sample evidence.