It Depends on Where You Search: Institutional Investor Attention and Underreaction to News

Abstract

We propose a direct measure of abnormal institutional investor attention (AIA) using news searching and news reading activity for specific stocks on Bloomberg terminals. AIA is highly correlated with institutional trading measures and related to, but different from, other investor attention proxies. Contrasting AIA with retail attention measured using Google search activity, we find that institutional attention responds more quickly to major news events, leads retail attention, and facilitates permanent price adjustment. The well documented price drifts following both earnings announcements and analyst recommendation changes are driven by announcements where institutional investors fail to pay sufficient attention.

The determinants of price discovery on bitcoin markets

“…Given the interpretation of news‐based indices as a measure for sentiment of professional investors (see Nooijen & Broda, 2016), this may suggest that informed traders are more willing to trade on the futures market during high news‐sentiment periods, thus makes futures prices relatively more informative during such periods. This is in line with Ben‐Rephael et al (2017), who find that institutional attention triggers more trading and responds more quickly to news. Turning our focus to social‐based sentiment, the coefficients are not statistically significant.…”

“…For our analysis, we follow Lin et al (2018) and investigate the impact of high sentiment periods on price discovery. For this purpose, we define two sentiment dummy variables ( Dummy_HighSent t ), which take the value of one, if the respective TRMI on day t is above the median TRMI during the previous 20 days, zero otherwise (see Ben‐Rephael, Da, & Israelsen, 2017, for a similar approach), where we consider news‐based and social‐based sentiment separately.…”

Glued to the TV: Distracted Noise Traders and Stock Market Liquidity

“…We make an important methodological contribution by showing that distracting events can be exploited to study the causal effects of short‐term fluctuations in noise traders’ attention. More broadly, our findings suggest that the impact of attention ultimately depends on who is (in)attentive (see also Ben‐Rephael, Da, and Israelsen ()).…”

Lazy Prices

“…For example, Tetlock (2011) constructs measures of "stale" news stories and demonstrates that investors overreact to stale information and underreact to novel information. Da, Engelberg, and Gao (2011) use Google search activity to pinpoint retail investor attention, while Ben-Raphael, Da, and Israelson (2017) measure institutional attention using Bloomberg search activity. The latter shows that stock price drift is most pronounced for stocks with the least amount of institutional attention.…”