Attention allocation: An empirical analysis of the asymmetric market responses to information shocks in China

Gao, Ya; Han, Xing; Li, Youwei; Vigne, Samuel A.; Xiong, Xiong

Abstract

Attention allocation—investors allocate their attention disproportionately within a day—has implications on how the market responds to information. Using high-frequency jumps detected in China, we show that the market underreacts to overnight information shocks, and the underreaction stems mainly from the short-leg stocks with highly negative overnight jumps. In comparison, the market overreacts to intraday information shocks, and the overreaction stems mainly from the long-leg stocks with highly positive intraday jumps. Moreover, the underreaction pattern strengthens while the overreaction pattern attenuates during market crashes, as investors pay limited attention when market performance is poor. Overall, these patterns are consistent with the interplay between attention allocation and investor sophistication in reshaping the asymmetric market reactions to information.

Citation

Gao, Y., Han, X., Li, Y., Vigne, S. A., & Xiong, X. (online). Attention allocation: An empirical analysis of the asymmetric market responses to information shocks in China. Financial Review, https://doi.org/10.1111/fire.12425

• Journal Article Type: Article
• Acceptance Date: Dec 17, 2024
• Online Publication Date: Jan 7, 2025
• Deposit Date: Jan 8, 2025
• Publicly Available Date: Jan 8, 2027
• Journal: Financial Review
• Print ISSN: 0732-8516
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• DOI: https://doi.org/10.1111/fire.12425
• Keywords: Asymmetric reactions; Attention allocation; Overnight; Information shocks; Intraday
• Public URL: https://hull-repository.worktribe.com/output/5002343