Institutional investors' limited attention and stock price informativeness in emerging markets: Evidence from China11We thank participants in 2021 China International Finance Conference (Shanghai) and the Finance and Development Forum (Tsinghua University) for helpful comments on an earlier version of the paper. Ni acknowledges financial support from the National Natural Science Foundation of China (No. 72272126), the Fundamental Scientific Center for Econometric Modeling and Economic Policy Studies, National Science Foundation of China (No.71988101), and the Key Laboratory of Econometrics (Xiamen University), Ministry of Education. All errors are our own

Xiaoran Ni and Qi Jin

Pacific-Basin Finance Journal, 2024, vol. 84, issue C

Abstract: Institutional shareholders, who are also subject to limited attention like individual investors, tend to be distracted by extreme return shocks to unrelated industries. This paper documents that institutional investor distraction significantly impairs the price efficiency of the Chinese financial market by reducing stock price informativeness. Further analysis indicates that institutional investor distraction directly decreases the frequency of corporate visits, the activeness of trading, and the reliance on disclosed information. Overall, our study not only provides empirical evidence for the effects of institutional investors' limited attention in emerging markets such as China but also sheds additional light on the importance of financial market institutionalization to the promotion of price efficiency.

Keywords: Institutional investors; Limited attention; Price efficiency; Stock price informativeness; Informed trading (search for similar items in EconPapers)
JEL-codes: G14 G23 G41 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:84:y:2024:i:c:s0927538x24000362

DOI: 10.1016/j.pacfin.2024.102285

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