Investor attention and stock market outcomes

• Main Author: Chen, Yao
• Published: University of Warwick 2017
• Subjects: 332.64; HG Finance
• Online Access: https://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.714981

The first essay (Chapter 2) shows that changes in gambling attitudes affect asset prices and corporate decisions. Using the Internet search volume for lottery-related keywords to capture gambling sentiment shifts, we show that when the overall gambling sentiment is high, investor demand for lottery-like stocks increases, stocks with lottery-like characteristics earn positive abnormal returns in the short-run, managers are more likely to announce stock splits to cater to the increased demand for low-priced lottery stocks, and IPOs perceived as lotteries earn higher first-day returns. Further, the sentiment-return relation is stronger among low institutional-ownership firms and in regions where gambling is more acceptable. The second essay (Chapter 3) examines the relation between social attributes and stock returns. As investors regularly update their beliefs on firm-level CSR records, they are likely to rebalance their portfolios to include firms with good social attributes. Using a novel measure to identify perceived social attributes, we demonstrate that stocks with good perceived social attributes have better future returns. A trading strategy that attempts to exploit demand-based return predictability generates an annualized risk adjusted performance of 14% and spans 15-36% of the market. Further, institutional trading results show that institutions have consistently higher demand for firms with good perceived social attributes. Our findings suggest that perceived social attributes predict stock returns. The third essay (Chapter 4) investigates how social attributes affect mutual fund flows. Using social sensitivity estimates to capture fund-level social attributes perceived by the market, we show that mutual funds with good social attributes attract 0.13% higher monthly flows than their counterparts. In addition, these funds experience greater appreciation in flows following good performance and lower decline in flows following bad performance. When investors increase demand for corporate social responsibility, funds perceived to have poor social attributes experience 0.5% reduction in monthly fund flows. Overall, our findings are consistent with the view that mutual fund investors value social attributes when making investment decisions.