Investor attention is a risk pricing factor? Evidence from Chinese investors for self-selected stocks

Dayong Dong and Keke Wu

China Finance Review International, 2019, vol. 10, issue 1, 95-112

Abstract: Purpose - The purpose of this paper is to empirically examine whether investor attention is a significant risk pricing factor. Design/methodology/approach - Using investor attention data from Eastmoney.com, which provides for each stock the number of investors whose watch list includes that stock on a daily basis, this paper constructs a “heat” factor based on the change in investor attention and a “market exposure” factor based on the proportion of attention on a given stock over the attention to all stocks. Using the Fama−MacBeth two-step regression and a rolling analysis, this study examines the ability of the investor attention factor to explain market returns. Findings - The empirical results show that there exists a risk premium for the “heat” factor and “market exposure” factor that is significantly different from zero. This finding shows that investor attention can systematically influence stock returns, making it a significant risk pricing factor. Practical implications - This paper’s research on the risk pricing factors of investor attention can help investors to rationally build investment portfolios, avoid risks and form a sound investment concept, which will further reveal the information recognition mechanism of the capital market and standardize the information disclosure behavior of listed companies. Originality/value - This paper provides evidence that investor attention is a risk pricing factor for the stock market. There are “heat” factors and “market exposure” factors in the Chinese stock market that significantly affect the purchasing behavior of individual investors.

Keywords: Risk premium; “heat” factor; “market exposure” factor; Investor attention; Risk pricing factor; F830.91 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:cfripp:cfri-11-2017-0218

DOI: 10.1108/CFRI-11-2017-0218

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