The effect of investor attention on the efficiency of the Brazilian stock market
ABSTRACT The objective of this article was to evaluate the relationship between investor attention, both professional and non-professional, and the efficiency of the Brazilian stock market, as measured by the predictability of daily returns. The role of investor attention in the capital market is a...
| Main Authors: | , , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Universidade de São Paulo
2024-01-01
|
| Series: | Revista Contabilidade & Finanças |
| Subjects: | |
| Online Access: | http://www.scielo.br/scielo.php?script=sci_arttext&pid=S1519-70772023000300503&tlng=pt |
| _version_ | 1797348483705864192 |
|---|---|
| author | Marcelo Guzella F. Henrique Castro Verônica de Fátima Santana |
| author_facet | Marcelo Guzella F. Henrique Castro Verônica de Fátima Santana |
| author_sort | Marcelo Guzella |
| collection | DOAJ |
| description | ABSTRACT The objective of this article was to evaluate the relationship between investor attention, both professional and non-professional, and the efficiency of the Brazilian stock market, as measured by the predictability of daily returns. The role of investor attention in the capital market is a controversial issue, since some studies show that it is capable of inducing efficiency, while others point out that it essentially contributes to greater volatility due to behavioral biases. This study contributes to the behavioral finance literature by pioneering the analysis of the effect of investor attention on Brazilian stock prices. Moreover, we found no previous studies that compare the effect of investor attention on market efficiency across investor classes, as measured by access to different financial information providers. The analysis of investor attention, as measured by the volume of searches on the internet, is relevant given the growing abundance of data and digital inclusion. The evidence of an effect of attention on market efficiency contributes to the critique of this classical hypothesis. The methodology consisted of estimating autoregressive models using daily data from 2018 to 2021 on search volume, returns, and transaction volume for Brazilian stocks, including the interaction between returns and search volume, to assess the influence of attention on price dynamics. In this work, we find that in the Brazilian stock market, investor attention contributes to greater market efficiency, as measured by lower predictability of returns, but the most pronounced effect comes from the attention of non-professional investors. Understanding how attention affects the incorporation of information into prices contributes to a critique of the market efficiency hypothesis, as well as allowing for profits to be made by exploiting opportunities based on the level of attention of a particular class of investors. |
| first_indexed | 2024-03-08T12:06:33Z |
| format | Article |
| id | doaj.art-4931c5740cce4942a9da4e6b401707c8 |
| institution | Directory Open Access Journal |
| issn | 1808-057X |
| language | English |
| last_indexed | 2024-03-08T12:06:33Z |
| publishDate | 2024-01-01 |
| publisher | Universidade de São Paulo |
| record_format | Article |
| series | Revista Contabilidade & Finanças |
| spelling | doaj.art-4931c5740cce4942a9da4e6b401707c82024-01-23T07:36:43ZengUniversidade de São PauloRevista Contabilidade & Finanças1808-057X2024-01-01349310.1590/1808-057x20231635.enThe effect of investor attention on the efficiency of the Brazilian stock marketMarcelo Guzellahttps://orcid.org/0000-0001-5243-8897F. Henrique Castrohttps://orcid.org/0000-0001-7456-2354Verônica de Fátima Santanahttps://orcid.org/0000-0002-9105-7488ABSTRACT The objective of this article was to evaluate the relationship between investor attention, both professional and non-professional, and the efficiency of the Brazilian stock market, as measured by the predictability of daily returns. The role of investor attention in the capital market is a controversial issue, since some studies show that it is capable of inducing efficiency, while others point out that it essentially contributes to greater volatility due to behavioral biases. This study contributes to the behavioral finance literature by pioneering the analysis of the effect of investor attention on Brazilian stock prices. Moreover, we found no previous studies that compare the effect of investor attention on market efficiency across investor classes, as measured by access to different financial information providers. The analysis of investor attention, as measured by the volume of searches on the internet, is relevant given the growing abundance of data and digital inclusion. The evidence of an effect of attention on market efficiency contributes to the critique of this classical hypothesis. The methodology consisted of estimating autoregressive models using daily data from 2018 to 2021 on search volume, returns, and transaction volume for Brazilian stocks, including the interaction between returns and search volume, to assess the influence of attention on price dynamics. In this work, we find that in the Brazilian stock market, investor attention contributes to greater market efficiency, as measured by lower predictability of returns, but the most pronounced effect comes from the attention of non-professional investors. Understanding how attention affects the incorporation of information into prices contributes to a critique of the market efficiency hypothesis, as well as allowing for profits to be made by exploiting opportunities based on the level of attention of a particular class of investors.http://www.scielo.br/scielo.php?script=sci_arttext&pid=S1519-70772023000300503&tlng=ptbehavioral financeinvestor attentionvolume of internet searchespredictability of returns |
| spellingShingle | Marcelo Guzella F. Henrique Castro Verônica de Fátima Santana The effect of investor attention on the efficiency of the Brazilian stock market Revista Contabilidade & Finanças behavioral finance investor attention volume of internet searches predictability of returns |
| title | The effect of investor attention on the efficiency of the Brazilian stock market |
| title_full | The effect of investor attention on the efficiency of the Brazilian stock market |
| title_fullStr | The effect of investor attention on the efficiency of the Brazilian stock market |
| title_full_unstemmed | The effect of investor attention on the efficiency of the Brazilian stock market |
| title_short | The effect of investor attention on the efficiency of the Brazilian stock market |
| title_sort | effect of investor attention on the efficiency of the brazilian stock market |
| topic | behavioral finance investor attention volume of internet searches predictability of returns |
| url | http://www.scielo.br/scielo.php?script=sci_arttext&pid=S1519-70772023000300503&tlng=pt |
| work_keys_str_mv | AT marceloguzella theeffectofinvestorattentionontheefficiencyofthebrazilianstockmarket AT fhenriquecastro theeffectofinvestorattentionontheefficiencyofthebrazilianstockmarket AT veronicadefatimasantana theeffectofinvestorattentionontheefficiencyofthebrazilianstockmarket AT marceloguzella effectofinvestorattentionontheefficiencyofthebrazilianstockmarket AT fhenriquecastro effectofinvestorattentionontheefficiencyofthebrazilianstockmarket AT veronicadefatimasantana effectofinvestorattentionontheefficiencyofthebrazilianstockmarket |