Working Paper: CEPR ID: DP14713
Authors: Michael Ehrmann; David-Jan Jansen
Abstract: This paper tests whether fluctuations in investors' attention affect stock return comovement with national and global markets, and which stocks are most affected. We measure fluctuations in investor attention using 59 high-profile soccer matches played during stock market trading hours at the three editions of the FIFA World Cup between 2010 and 2018. Using intraday data for more than 750 firms in 19 countries, we find that distracted investors shift attention away from firm-specific and from global news. When movements in global stock markets are large, the pricing of global news reverts back to normal, but firm-specific news keep being priced less, leading to increased comovement of stock returns with the national stock market. This increase is economically large, and particularly strong for those stocks that typically comove little with the national market, thereby leading to a convergence in betas across stocks.
Keywords: Investor Attention; Stock Returns; Comovement
JEL Codes: G12; G15; G41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Investor distraction during national team matches (Z23) | Prices of individual stocks comove more with the national stock market (G10) |
| Investor distraction (G31) | Decoupling from global price formation (F69) |
| Salient global market movements (F29) | Pricing of global movements returns to normal levels (F29) |
| Attention to firm-specific news decreases (G14) | Increased comovement with the national market (F29) |
| Stocks that typically comove less with the national market (G10) | Experience a convergence in their comovement patterns during matches (C73) |
| Investor distraction (G31) | Impact on stock return comovement (G17) |