News co-occurrence, attention spillover, and return predictability
We examine the effect of investor attention spillover on stock return predictability. Using a novel measure, the News Network Triggered Attention index (NNTA), we find that NNTA negatively predicts market returns with a monthly in(out)-of-sample R-square of 5.97% (5.80%). In the cross-section, a lon...
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| Main Authors: | , , , |
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| Format: | text |
| Language: | English |
| Published: |
Institutional Knowledge at Singapore Management University
2018
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| Subjects: | |
| Online Access: | https://ink.library.smu.edu.sg/soe_research/2049 https://ink.library.smu.edu.sg/context/soe_research/article/3048/viewcontent/News_co_occurrence_2018_wp.pdf |
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| Institution: | Singapore Management University |
| Language: | English |
| Summary: | We examine the effect of investor attention spillover on stock return predictability. Using a novel measure, the News Network Triggered Attention index (NNTA), we find that NNTA negatively predicts market returns with a monthly in(out)-of-sample R-square of 5.97% (5.80%). In the cross-section, a long-short portfolio based on news co-occurrence generates a significant monthly alpha of 68 basis points. The results are robust to the inclusion of alternative attention proxies, sentiment measures, other news- and information-based predictors, across recession and expansion periods. We further validate the attention spillover effect by showing that news co-mentioning leads to greater increases in Google and Bloomberg search volumes than unconditional news coverage. Our findings suggest that attention spillover in a news-based network can lead to significant stock market overvaluations, and especially when arbitrage is limited. |
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