Economic uncertainty and investor attention

Daniel Andrei; Henry L. Friedman; N. Bugra Ozel

doi:10.1016/j.jfineco.2023.05.003

Journal of Financial Economics Vol. 149 No. 2 2023

Economic uncertainty and investor attention

Daniel Andrei¹; Henry L. Friedman²; N. Bugra Ozel³

¹ McGill University · ² UCLA Anderson, 110 Westwood Plaza, D406, Los Angeles, CA 90095, United States · ³ The University of Texas at Dallas

open access

Abstract

This paper develops a multi-firm equilibrium model of information acquisition based on differences in firms’ characteristics. The model shows that heightened economic uncertainty amplifies stock price reactions to earnings announcements via increased investor attention, which varies by firm characteristics. Firms with higher systematic risk or more informative announcements attract more attention and exhibit stronger reactions to earnings announcements. Moreover, heightened investor attention caused by high economic uncertainty leads to a steeper CAPM relation and higher betas for announcing firms. Empirical analyses using firm-level attention measures and CAPM tests on high- versus low-attention days support the model’s predictions.

DOI: 10.1016/j.jfineco.2023.05.003
Volume: 149
Issue: 2
Pages: 179-217
Language: en
Sources: crossref bibtex:phds-export.bib openalex

Economic uncertainty and investor attention

Abstract

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