Does investor attention influence stock market activity? The case of spin-off deals

Carretta, Alessandro and Farina, Vincenzo and Graziano, Elvira Anna and Reale, Marco (2011): Does investor attention influence stock market activity? The case of spin-off deals.

Abstract

This paper investigates empirically the nature of the interactions between mass media, investor attention and the stock market using data from a sample of 16 spin-off deals traded on NYSE and published between 2004 and 2010 in “Wall Street Journal”, the US’s second-largest newspaper by circulation. The results show that: i) the impact of media sentiment on the stock market reactions is enhanced / moderated by the level of attention of investors; ii) individual investors’ attention is grabbed by stocks experiencing high trading volumes on the previous day; iii) high attention could result in downward pressure on stock market returns.

• Item Type: MPRA Paper
• Language: English
• Keywords: Media Sentiment, Investor Attention, Internet Search, Spin-off
• Subjects: G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers ; Acquisitions ; Restructuring ; Corporate Governance; G - Financial Economics > G1 - General Financial Markets > G10 - General

References

Akaike, H., 1973. A new look at statistical model identification. IEEE Transactions on Automatic Control AC-19, 716-723.

Anderson, T.W., 1971. The Statistical Analysis of Time Series. Wiley, New York.

Antweiler, W., Frank, M.Z., 2004. Is all that talk just noise? The information content of internet stock message boards. Journal of Finance 59, 1259-1293.

Barber, B.M., Odean, T., 2008. All that glitters: The effect of attention and news on the buying behavior of individual and institutional investors. Review of Financial Studies 21, 785-818.

Barberis, N., Shleifer, A., Vishny, R., 1998. A model of investor sentiment. Journal of Financial Economics 49, 307-343.

Baumeister, R.F., Bratslavsky, E., Finkenauer, C., Vohs, K.D., 2001. Bad is stronger than good. Review of General Psychology 5, 323–370.

Box, G.E.P., Tiao, G.C., 1977. A canonical analysis of multiple time series. Biometrika 64, 355-365.

Brief, A.P., Motowidlo, S.J., 1986. Prosocial organizational behaviours. Academy of Management Review 11, 710-725.

Brunner, K., Meltzer, A.H., 1990. Money supply. In: Friedman, B.M., Hahn, F.H. (Eds.), Handbook of Monetary Economics, Vol. 1. North-Holland, Amsterdam.

Carretta, A., Farina, V., Martelli, D., Fiordelisi, F., Schwizer, P., 2011. The impact of corporate governance press news on stock market returns. European Financial Management 17, 100-119.

Chemmanur, T., Yan, A., 2009. Advertising, attention, and stock returns. Working Paper, Boston College and Fordham University.

Chemmanur, T.J., Jordan, B.D., Liu, M.H., Wu, Q. 2010. Antitakeover provisions in corporate spin-offs. Journal of Banking and Finance 34, 813-824.

Chemmanur, T.J., Yan, A. 2004. A theory of corporate spin-offs. Journal of Financial Economics 72, 259-290.

Choi, H., Varian, H., 2009. Predicting the Present with Google Trends. Working Paper, Google Inc.

Cohen, L., Frazzini, A., 2008. Economic links and predictable returns. Journal of Finance 63, 1977-2011. Coval, J.D., Shumway, T., 2001. Is sound just noise? Journal of Finance 56, 1887- 1910.

Cusatis, P., Miles, J., Woolridge, J., 1993. Restructuring through spinoffs: The stock market evidence. Journal of Financial Economics 33, 293 – 311.

Da, Z., Engelberg, J., Gao, P., 2009. In search of attention. Journal of Finance, forthcoming.

Daley, L., Mehrotra, V., Sivakumar, R., 1997. Corporate focus and value creation: evidence from spinoffs. Journal of Financial Economics 45, 257–281.

Daniel, K.D., Hirshleifer, D., Subrahmanyam, A., 1998, Investor psychology and security market under- and overreactions. Journal of Finance 53, 1839-1885.

Dell’Acqua, A., Perrini, F., Caselli, S., 2010. Conference calls and stock price volatility in the post-reg FD era. European Financial Management 16, 256–270.

DellaVigna, S., Pollet, J., 2009. Investor inattention and Friday earnings announcements. Journal of Finance 64, 709-749.

Desai, H., Jain, P.C. 1999. Firm performance and focus: Long-run stock market performance following spinoffs. Journal of Financial Economics 54, 75-101.

Doukas, J.A., Kim, C.F., Pantzalis, C., 2005. Two faces of analyst coverage. Financial Management 34, 99-125.

Edwards, D., 2000. Introduction to Graphical Modelling. Springer, New York. Fama, E.F., 1970. Efficient capital markets: A review of theory and empirical work. Journal of Finance 25, 383-417.

Fehle, F.R., Tsyplakov, S., Zdorovtsov, V.M., 2005. Can companies influence investor behaviour through advertising? Super bowl commercials and stock returns. European Financial Management 11, 625-647.

Fiske, S.T., Taylor, S.E., 1991. Social cognition. McGraw-Hill, New York.

Ginsberg, J., Mohebbi, M.H., Patel, R.S., Brammer, L., Smolinski, M.S., Brilliant, L., 2009. Detecting influenza epidemics using search engine query data. Nature 457, 1012-1014.

Griffiths, W., Judge, G., 2010. Testing location vectors: The error covariance matrix is unknown. Journal of Banking and Finance, forthcoming.

Hannan, E.J., Quinn, B.G., 1979. The determination of the order of an autoregression. Journal of the Royal Statistical Society Series B 41, 190-195.

Hite, G., Owers, J., 1983. Security price reactions around corporate spinoff announcements. Journal of Financial Economics 12, 409-436.

Hong, H., Touros W., Valkanov R., 2007 Do industries lead stock markets? Journal of Financial Economics 83, 367-396.

Hong, H., Stein, J.C. 1999. A unified theory of underreaction, momentum trading, and overreaction in asset markets. Journal of Finance 54, 2143-2184.

Huberman, G., and Regev, T., 2001. Contagious speculation and a cure for cancer. Journal of Finance 56, 387–396.

Hurvich, C.M., Tsai, C.L., 1989. Regression and time series model selection in small samples. Biometrika 76, 297–307.

Jegadeesh, N., Titman, S., 1993. Returns to buying winners and selling losers: Implications for stock market efficiency. Journal of Finance 48, 65–91.

Loughran, T., McDonald, B. 2011. When is a liability not a liability? Textual analysis, dictionaries, and 10-Ks. Journal of Finance 66, 35-65.

Miles, J., Rosenfeld, J., 1983. The effect of voluntary spinoff announcements on shareholder wealth. Journal of Finance 38, 1597-1606.

Moskowitz, T.J., Grinblatt, M., 1999. Do industries explain momentum? Journal of Finance 54, 1249–1290.

Peng, L., Xiong, W., Bollerslev, T., 2007. Investor attention and time-varying comovements. European Financial Management 13, 394-422.

Reale, M., Tunnicliffe Wilson, G., 2001. Identification of vector AR models with recursive structural errors using conditional independence graphs. Statistical Methods and Applications 10, 49-65.

Reale, M., Tunnicliffe Wilson G., 2002. The sampling properties of conditional independence graphs for structural vector autoregressions. Biometrika 89, 457-461.

Rosenfeld, J., 1984. Additional evidence on the relation between divestiture announcements and shareholder wealth. Journal of Finance 39, 1437-1448.

Rozin, P., Royzman, E., 2001. Negativity bias, negativity dominance, and contagion. Personality and Social Psychology Review 5, 296-320.

Schipper, K., Smith, A., 1983. Effects of recontracting on shareholder wealth: The case of voluntary spinoffs. Journal of Financial Economics 12, 437-467.

Schwarz, G., 1978. Estimating the dimension of a model. The Annals of Statistics 6, 461-464.

Scott, M., 2004. WordSmith Tools Version 4. Oxford University, Oxford.

Shoemaker, P., Reese, S., 1996. Mediating the message: Theories of influence on mass media content. Longman, New York.

Smith, J., Klein, L., 2006. Testing for market efficiency. Working paper, Baruch College.

Stone, P.J., Dunphy, D.C., Smith M.S, Ogilvie, D.M., 1966. The general inquirer: a computer approach to content analysis. MIT studies in comparative politics - MIT Press, Cambridge.

Swanson, N.R., Granger, C.W.J., 1997. Impulse response functions based on a causal approach to residual orthogonalization in vector autoregressions. Journal of the American Statistical Association 92, 357 - 367.

Tiao, G.C., Tsay, R.S., 1989. Model specification in multivariate time series. Journal of the Royal Statistical Society Series B 51, 157-213.

Tunnicliffe Wilson, G., Reale, M., 2008. The sampling properties of conditional independence graphs for I(1) structural VAR models. Journal of Time Series Analysis 29, 802-810.

Veld, C., Veld-Merkoulova, Y. 2009. Value creation through spin-offs: A review of the empirical evidence. International Journal of Management Reviews 11, 407-420.

Veld, C., Veld-Merkoulova, Y., 2004. Do spin-offs really create value? The European case. Journal of Banking and Finance 28, 1111-1135.