Investor Inattention and the Market Impact of Summary Statistics

Gilbert, T, Kogan, S, Lochstoer, L and Ozyildirim, A (2007) Investor Inattention and the Market Impact of Summary Statistics. Working Paper. London Business School IFA Working Paper.

Abstract

Investors with limited attention have an incentive to focus on summary statistics rather than individual pieces of information. We use this observation to form a test of the impact of limited attention on the aggregate stock market. We examine the market response to a macro economic release that is purely a summary statistic, the U.S. Leading Economic Index (LEI). Consistent with the limited attention hypothesis, we show that the LEI announcement has an impact on aggregate stock returns, return volatility, and trading volume. Furthermore, we find that the response to the LEI is higher for stocks which inattentive investors are more likely to trade.