All that Glitters: The effect of Attention and news on the Buying Behavior of Individual and Institutional Investors

  • Barber B
  • Odean T
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We test and confirm the hypothesis that individual investors are net buyers of attention-grabbing stocks, e.g., stocks in the news, stocks experiencing high abnormal trading volume, and stocks with extreme one-day returns. Attention-driven buying results from the difficulty that investors have searching the thousands of stocks they can potentially buy. Individual investors do not face the same search problem when selling because they tend to sell only stocks they already own. We hypothesize that many investors consider purchasing only stocks that have first caught their attention. Thus, preferences determine choices after attention has determined the choice set. You have time to read only a limited number of research papers. How did you choose to read this paper? Investors have time to weigh the merits of only a limited number of stocks. Why do they consider some stocks and not others? In making a decision, we first select which options to consider and then decide which of those options to choose. Attention is a scarce resource. When there are many alternatives, options that attract attention are more likely to be considered, hence more likely to be chosen, while options that do not attract attention are often ignored. If the salient attributes of an option are critical to our utility, attention may serve us well. If not, attention may lead to suboptimal We appreciate the comments of

Author-supplied keywords

  • Abnormal trading volume
  • Attention-based buying
  • Individual investors
  • Institutional investors
  • Search problem

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  • Brad M. Barber

  • Terrance Odean

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