Sentiment, limited attention and mispricing
We examine whether various anomalies can be driven by two common behavioral forces, namely, ``subjective'' sentiment (representing investors' subjective biased beliefs) and ``objective'' limited attention (representing investors' objective cognitive constraints). While...
Saved in:
| Main Authors: | , , , |
|---|---|
| Format: | text |
| Language: | English |
| Published: |
Institutional Knowledge at Singapore Management University
2020
|
| Subjects: | |
| Online Access: | https://ink.library.smu.edu.sg/lkcsb_research/6799 |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| Institution: | Singapore Management University |
| Language: | English |
| Summary: | We examine whether various anomalies can be driven by two common behavioral forces, namely, ``subjective'' sentiment (representing investors' subjective biased beliefs) and ``objective'' limited attention (representing investors' objective cognitive constraints). While sentiment explains well many anomalies that are more speculative on the short-leg, it fails to explain anomalies that are equally speculative on the long and short-leg, including momentum and post-earnings announcement drift. Market-wide attention shifts, proxied by number of news averaged across stocks, significantly attenuates underreaction-driven anomalies, beyond the effect of sentiment. Our findings suggest that increase in market-wide attention can temporarily reduce the cost of attending to market and improve price efficiency. |
|---|