The Importance of Investor Attention

Attention-based buying is a very common investment decision-making practice for individual investors. As compared to institutional investors, individuals are strongly biased towards buying attention-grabbing stocks and relying upon non-genuine news from the Internet. Further, they have less sophisticated investment techniques available and hence, their investment behavior is often influenced by attention. The two fundamental questions of this book are first, how can attention actually be measured and second, does attention-based investing influence the pricing of stocks? The book presents a relatively new approach for measuring investor attention and applies the Internet search volume on Google as the decisive proxy. The study suggests that a relatively large increase in the Google search volume is associated with a rise in the level of investor attention. Based on this assumption, the book empirically shows that investor attention and stock price movements are interrelated and that by enhancing the level of investor attention, a company has the power to temporarily increase its market value.