Investor Attention and Stock Price Movement

Abstract

Prior studies have documented that information presence (absence) leads to price continuation (reversal) when a stock price experiences extreme shock. The authors investigate whether the level of investor attention have an impact on stock price dynamics following the shock. They show that when shocks are not accompanied by new information, the price generally reverses, and the magnitude of the reversal is stronger for stocks with lower degree of investor attention. The asymmetric effect on the magnitude of reversal is stronger for stock with higher return volatility. In addition, for the price shocks accompanied by new information, stock price would continue for a short run, and such continuation is statistically significant and stronger when investors are optimistic toward to the stocks.