Investors Attention in Financial Markets

This chapter delves into the critical role of investor attention in financial markets, exploring how cognitive constraints and media influence shape trading behavior and portfolio decisions. It examines various measures of attention, including direct and indirect methods, and differentiates between the attention levels of professional and retail investors. The chapter also provides empirical evidence using Apple Inc. as a case study, highlighting the impact of investor attention on stock price movements. Additionally, it discusses the relationship between retail and naive investor attentions, using Google Trends and Wikipedia page views as proxies. The findings reveal that investor attention is a significant factor in explaining stock price movements and that different categories of investors exhibit distinct patterns of attention. The chapter concludes with a Vector Autoregressive (VAR) analysis, demonstrating the temporal precedence of attention among different investor groups.