Premium
Negativity Bias in Attention Allocation: Retail Investors’ Reaction to Stock Returns
Author(s) -
Reyes Tomas
Publication year - 2019
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12180
Subject(s) - stock (firearms) , negativity bias , econometrics , stock market , economics , stock price , negativity effect , business , financial economics , monetary economics , psychology , mechanical engineering , paleontology , social psychology , horse , engineering , biology , cognitive science , series (stratigraphy)
We argue that negative stock market performance attracts more attention from retail investors than comparable positive performance. Specifically, we test and confirm the hypothesis that retail investors pay more attention to negative extreme returns than positive ones. We present a measure of attention at the aggregate and company‐specific levels using Google's internet search volume indexes. These measures correlate with, but are different from, existing proxies of attention. Our empirical results strongly support the position that investors display a negativity bias in attention allocation with respect to extreme stock returns. Across all specifications, lagged negative extreme returns are stronger predictors of high attention at the individual‐stock and stock market levels than positive ones.