New research shows that where investors focus attention can help predict short-term stock market moves. The study was done by a team that includes Zhi Da from the University of Notre Dame and coauthors from Baruch College and National Taiwan University. Their paper appears in Management Science.
The researchers measured retail attention with Google’s daily search volume index and institutional attention with Bloomberg’s Daily Maximum Readership score. They calculated abnormal attention for each stock and averaged these values into two market-level indexes. The study finds that rising retail attention tends to precede falling returns, while rising institutional attention tends to precede higher returns.
Difficult words
- investor — person who buys or sells financial assetsinvestors
- attention — notice or interest people give to something
- predict — say what will happen in the future
- retail attention — interest or searches by individual small investors
- institutional attention — interest or action by large organizations or funds
- abnormal — different from what is normal or expected
- return — money gained or lost from an investmentreturns
- index — number that shows information about a marketindexes
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Discussion questions
- Have you ever searched online for information about a company? What did you search for?
- Which would you trust more: news from big institutions or searches by many people? Why?
- How could more attention make a stock price go up or down?
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