All That Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors
Read the paperopens doi.org in a new tab
What they found
Because individual investors face thousands of stocks and cannot evaluate them all, the authors hypothesized that they buy whatever catches their attention. Using retail brokerage data and institutional trade data, they showed that individuals are net buyers of stocks in the news, stocks with extreme one-day returns, and stocks with unusually high volume, while institutions are not. This attention-driven buying pushes prices up temporarily and is followed by poor returns. The pattern is one-sided: attention drives buying much more than selling, because most individuals only sell what they already hold.
What you can use
- Retail investors buy what is in the headlines; that buying is crowded and tends to be followed by underperformance.
- The stock that just had a huge day and is trending on social media is exactly the one this research says to be careful with.
- Attention drives buying, not selling, so retail flow is asymmetric and predictable.
Caveats
Pre-2000 brokerage data and pre-social-media news; the attention channels have changed but the Robinhood studies found the same pattern. Returns after attention events are modestly negative, not catastrophic.
Tags: retail, attention, news, behavioral
Summaries are our own reading of the paper, not the authors' words. Educational only, not advice. Discuss it in Book Club.