All That Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors

We test and confirm the hypothesis that individual investorsare net buyers of attention-grabbing stocks, e.g., stocks inthe news, stocks experiencing high abnormal trading volume,and stocks with extreme one-day returns. Attention-driven buyingresults from the difficulty that investors have searching thethousands of stocks they can potentially buy. Individual investorsdo not face the same search problem when selling because theytend to sell only stocks they already own. We hypothesize thatmany investors consider purchasing only stocks that have firstcaught their attention. Thus, preferences determine choicesafter attention has determined the choice set.