Investors’ attention and information losses under market stress
Dionisis Philippas,
Catalin Dragomirescu-Gaina,
Stéphane Goutte and
Duc Khuong Nguyen
Journal of Economic Behavior & Organization, 2021, vol. 191, issue C, 1112-1127
Abstract:
The paper proposes a novel point-wise entropy approach to measure the time-varying losses in the value of information that investors associate with market signals, financial and economic indicators, and news. We cast our approach in a Bayesian framework and assume that market agents update their beliefs to incoming signals based on a prior information set. By exploiting the distribution rather than the time-series properties of information signals, our method is able to construct univariate signal-specific, but also composite proxies of information loss, with the latter being more efficient in reducing misleading effects and interpretation errors. As an empirical illustration, we construct information loss proxies for the US equity market from several mainstream information signals and find that the majority of information loss indicators can influence investors’ attention, which then intermediates the impact of information signals on market outcomes. Finally, we show that, by relying on composites rather than univariate proxies, market agents can diversify and thus reduce their information losses when interpreting signals associated with the same underlying event.
Keywords: Information loss; Point-wise entropy; Attention; Google search volume (search for similar items in EconPapers)
JEL-codes: C32 D81 G11 G14 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S016726812100425X
Full text for ScienceDirect subscribers only
Related works:
Working Paper: Investors’ attention and information losses under market stress (2021) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:191:y:2021:i:c:p:1112-1127
DOI: 10.1016/j.jebo.2021.09.040
Access Statistics for this article
Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.
More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().