Stock-driven Household Attention

Hie Joo Ahn and Shihan Xie

Papers from arXiv.org

Abstract: We investigate the effects of stockholding on households' attention to the macroeconomy. Households' attentiveness is measured by their accuracy of inflation expectations and perceptions. Relative to non-stockholders, stockholders produce more accurate inflation forecasts and backcasts, disagree less about future inflation, and adjust their outlook more responsively to news, suggesting that stock-market participation raises households' attention. Frequent changes in stock prices incentivize stockholders to closely monitor financial markets for optimal trading, given the low cost of acquiring information. Consequently, paying attention to the macroeconomy helps hedge the risks associated with holding stocks. Therefore, attention heterogeneity driven by stockholdings can be a channel through which the distributional consequences of monetary policy are created.

Date: 2024-07
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