Economic uncertainty and investor attention

Daniel Andrei, Henry Friedman and N. Bugra Ozel

Journal of Financial Economics, 2023, vol. 149, issue 2, 179-217

Abstract: This paper develops a multi-firm equilibrium model of information acquisition based on differences in firms’ characteristics. The model shows that heightened economic uncertainty amplifies stock price reactions to earnings announcements via increased investor attention, which varies by firm characteristics. Firms with higher systematic risk or more informative announcements attract more attention and exhibit stronger reactions to earnings announcements. Moreover, heightened investor attention caused by high economic uncertainty leads to a steeper CAPM relation and higher betas for announcing firms. Empirical analyses using firm-level attention measures and CAPM tests on high- versus low-attention days support the model’s predictions.

Keywords: Investor attention; Economic uncertainty; Earnings announcements; CAPM (search for similar items in EconPapers)
JEL-codes: G14 G41 M41 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:149:y:2023:i:2:p:179-217

DOI: 10.1016/j.jfineco.2023.05.003

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