Information salience, investor attention, and stock price crash risk

Abstract

We find that investor attention significantly increases stock price crash risk. To identify the causal effect, we employ daily repeated quasi-natural experiments where the difference of investor attention is not driven by stock fundamentals, but rather exogenous price rounding issue. This positive effect is more pronounced among firms with higher daily abnormal Baidu search index and higher abnormal small fund inflows ratio, but is mitigated for firms with more sophisticated investors, state-owned enterprise, and firms with relaxation of short-sale constraints. Additionally, we provide supporting evidence that information asymmetry triggered by noise attention serves as a channel through which investor attention amplifies stock price crash risk. Finally, we provide additional evidence illustrating the generalizability of our findings.