Investor Attention and Topic Appearance Probabilities: Evidence from Treasury Bond Market

Motivated by the category-learning behavior, we propose to use Topic Appearance Probability (TAP) in the financial news as an alternative measure of investor attention. We then investigate the relationship between the investor attention, measured by the widely used the Google Search Volume Index and our proposed TAP, and the short-term 3-month and long-term 10-year Treasury yields using daily and weekly data. Our empirical findings are:

(1) there exists a contemporaneous relationship between investor attention and the return of the Treasury yields for daily data, but not weekly data;

(2) The investor attention has a more pronounced predictive power on the return of the 3-month Treasury yield than that of 10-year, which is in terms of adjusted R2 and the number of significant terms.

(3) Investor attention has certain predictive power over the volatility.