Market-Wide Attention, Trading, and Stock Returns

Abstract

Market-wide attention-grabbing events — record levels for the Dow and front-page articles about the stock market — predict the trading behavior of investors and, in turn, market returns. Both aggregate and household-level data reveal that high market-wide attention events lead investors to sell their stock holdings dramatically when the level of the stock market is high. Such aggressive selling has a negative impact on market prices, reducing market returns by 19 basis points on days following attention-grabbing events.