Publication Type
Working Paper
Version
publishedVersion
Publication Date
11-2018
Abstract
We examine the effect of investor attention spillover on stock return predictability. Using a novel measure, the News Network Triggered Attention index (NNTA), we find that NNTA negatively predicts market returns with a monthly in(out)-of-sample R-square of 5.97% (5.80%). In the cross-section, a long-short portfolio based on news co-occurrence generates a significant monthly alpha of 68 basis points. The results are robust to the inclusion of alternative attention proxies, sentiment measures, other news- and information-based predictors, across recession and expansion periods. We further validate the attention spillover effect by showing that news co-mentioning leads to greater increases in Google and Bloomberg search volumes than unconditional news coverage. Our findings suggest that attention spillover in a news-based network can lead to significant stock market overvaluations, and especially when arbitrage is limited.
Keywords
Investors attention, Network, Return predictability, Short-sales constraint, Media coverage, News tones, Heterogeneous belief
Discipline
Econometrics | Finance and Financial Management
Research Areas
Econometrics
First Page
1
Last Page
53
Identifier
10.2139/ssrn.2927561
Publisher
SSRN
Citation
GUO, Li; PENG, Lin; TAO, Yubo; and TU, Jun.
News co-occurrence, attention spillover, and return predictability. (2018). 1-53.
Available at: https://ink.library.smu.edu.sg/soe_research/2049
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.2139/ssrn.2927561