Searching for Gambles: Investor Attention, Gambling Sentiment, and Stock Market Outcomes

PurposeThis study disentangles the investor-base effect and the information effect of investor attention. The former leads to a larger investor base and higher stock returns, while the latter facilitates the dissemination of information among investors and impacts informational trading.Design/methodology/approachUsing positive volume shocks as a proxy for increased investor attention, this study evaluates the impacts of the investor-base effect and the information effect of investor attention on market correction following extreme daily returns in the US stock market from 1966 to 2018.FindingsThis study finds that the investor-base effect increases subsequent returns of both daily winner and daily loser stocks. The information effect leads to economically less significant return reversals for both the daily winner and daily loser stocks. These two effects tend to have economically more significant impacts on the daily loser stocks. The economic significance of these two effects is also related to firm size and the state of the stock market.Originality/valueThis study is the first to disentangle the investor-base effect and the information effect of increased investor attention. The evidence that the information effect facilitates the dissemination of new information and impacts stock returns contributes to the strand of studies on the impact of investor attention on market efficiency. This evidence also contributes to the strand of studies analyzing the impact of informational trading on stock returns. In addition, this study provides evidence for market overreaction and the subsequent correction. The results for up and down markets contribute to the literature on the investors' trading behavior.

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Investor Attention, Market Dynamics, and Momentum in the Korean Stock Market

Korean Journal of Financial Studies ◽

10.26845/kjfs.2020.08.49.4.589 ◽

2020 ◽

Vol 49 (4) ◽

pp. 589-641

Author(s):

Cheoljun Eom ◽

Uk Chang ◽

Byung Jin Kang ◽

Woo Baik Lee ◽

Jong Won Park

Keyword(s):

Stock Market ◽

Market Dynamics ◽

Momentum Effect ◽

High Turnover ◽

Investor Attention ◽

Momentum Profits ◽

Korean Stock Market ◽

Market Situation ◽

The Impact ◽

Loser Portfolio

This study examines the effects of investor attention on momentum in the Korean stock market. The results reveal significant negative momentum profits in stock groups with high investor attention (high turnover stocks), but insignificant results in those with low investor attention (low turnover stocks). Within high turnover stock groups, the winner portfolio has a declining price trend and insignificant performance, while the loser portfolio realizes significant positive performance through a substantial price increase in the future period. The momentum effect is highly dependent on the reversed performance of the loser portfolio. Second, the performance of the large overreaction stock group shows a more significant negative momentum effect compared to the low overreaction stock group, that is, the degree of overreaction significantly affects the momentum effect. Third, negative momentum profits are consistently observed regardless of the market dynamics. Specifically, more substantial and significant negative performance occurs in the transition market, where the market situation reverses between the past and future periods. Fourth, negative momentum profits are consistently identified even after controlling for the impact of common factors and volatility and liquidity into turnover. Our findings are qualitatively different from the characteristics of the traditional momentum effects generally reported in Western countries.

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Daily Winners and Losers in the Korean Stock Market

Korean Journal of Financial Studies ◽

10.26845/kjfs.2020.08.49.4.565 ◽

2020 ◽

Vol 49 (4) ◽

pp. 565-588

Author(s):

Jangkoo Kang ◽

Jaesun Yun

Keyword(s):

Stock Market ◽

Idiosyncratic Volatility ◽

Investor Attention ◽

Foreign Investors ◽

Working Paper ◽

Retail Investors ◽

Korean Stock Market ◽

Main Driver ◽

Volatility Puzzle ◽

Idiosyncratic Volatility Puzzle

In their working paper, Kumar, Ruenzi, and Ungeheuer (KRU) document that stocks ranked as daily winners or losers in the previous month underperform unranked stocks during the month after the ranking. KRU explain that the ranked stocks experience a large increase in investor attention, which leads to temporary overpricing and subsequent underperformance. Following KRU, we investigate whether the same effect exists in the Korean stock market and find a robust daily winners and losers effect. First, stocks that were both daily winners and losers in a given month underperform those that were neither daily winners nor losers during the following months. Second, stocks that were never a daily winner or loser during the previous month do not exhibit the idiosyncratic volatility puzzle or the MAX effect. Moreover, the underperformance of ranked stocks is robust after controlling for the idiosyncratic volatility and the MAX effect. We suggest that the overpricing caused by excessive attention to daily winners and losers may be the main driver of the idiosyncratic volatility puzzle and the MAX effect. Lastly, we find that retail investors buy daily winners and losers, while both institutional investors and foreign investors decrease trades in the ranked stocks.

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Predicting the Reputation of Pharmaceutical Firms with Financing and Geographical Location Data

Mathematics ◽

10.3390/math9161893 ◽

2021 ◽

Vol 9 (16) ◽

pp. 1893

Author(s):

Mª Ángeles Alcaide ◽

Elena de la de la Poza ◽

Mª Natividad Guadalajara

Keyword(s):

Logistic Regression ◽

Pharmaceutical Industry ◽

Stock Market ◽

Geographical Location ◽

Pharmaceutical Companies ◽

Debt Ratio ◽

Market Outcomes ◽

Pharmaceutical Firms ◽

Location Data ◽

Stock Market Performance

Reputation is a strategic asset for firms, but has been poorly studied in the pharmaceutical industry, particularly in relation to their financial and stock-market performance. This work aimed to predict the probability of a firm being included in a pharmaceutical reputation index (Merco and PatientView), and the position it occupies, according to its economic–financial and stock-market outcomes and its geographical location. Fifty firms with excellent sales in 2019 and their rankings in 2017–2019 were employed. The methodology followed was logistic regression. Their research and development (R&D) expenditures and dividends strongly influenced them being included in both rankings. Non-Asian pharmaceutical companies were more likely to belong to the two reputation indices than Asian ones, and to occupy the best positions in the Merco ranking. Although no large differences appeared in the firms in both indices, differences were found in the position that pharmaceutical companies occupied in rankings and in the variables that contribute to them occupying these positions. Being in PatientView influenced dividends, sales, and income, while appearing in Merco showed accounting aspects like value in books and debt ratio.

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The joint dynamics of investor beliefs and trading during the COVID-19 crash

Proceedings of the National Academy of Sciences ◽

10.1073/pnas.2010316118 ◽

2021 ◽

Vol 118 (4) ◽

pp. e2010316118

Author(s):

Stefano Giglio ◽

Matteo Maggiori ◽

Johannes Stroebel ◽

Stephen Utkus

Keyword(s):

Stock Market ◽

Stock Returns ◽

Real Economy ◽

Market Outcomes ◽

Stock Market Crash ◽

Long Run ◽

Retail Investors ◽

Joint Dynamics ◽

Short Run ◽

Investor Expectations

We analyze how investor expectations about economic growth and stock returns changed during the February−March 2020 stock market crash induced by the COVID-19 pandemic, as well as during the subsequent partial stock market recovery. We surveyed retail investors who are clients of Vanguard at three points in time: 1) on February 11–12, around the all-time stock market high, 2) on March 11–12, after the stock market had collapsed by over 20%, and 3) on April 16–17, after the market had rallied 25% from its lowest point. Following the crash, the average investor turned more pessimistic about the short-run performance of both the stock market and the real economy. Investors also perceived higher probabilities of both further extreme stock market declines and large declines in short-run real economic activity. In contrast, investor expectations about long-run (10-y) economic and stock market outcomes remained largely unchanged, and, if anything, improved. Disagreement among investors about economic and stock market outcomes also increased substantially following the stock market crash, with the disagreement persisting through the partial market recovery. Those respondents who were the most optimistic in February saw the largest decline in expectations and sold the most equity. Those respondents who were the most pessimistic in February largely left their portfolios unchanged during and after the crash.

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