Pontificia Universidad Católica de Chile Pontificia Universidad Católica de Chile
Reyes T. (2019)

Negativity Bias in Attention Allocation: Retail Investors’ Reaction to Stock Returns

Revista : International Review of Finance
Tipo de publicación : ISI Ir a publicación


We argue that negative stock market performance attracts more attention from retail investors than comparable positive performance. Specifically, we test and confirm the hypothesis that retail investors pay more attention to negative extreme returns than positive ones. We present a measure of attention at the aggregate and company‐specific levels using Google’s internet search volume indexes. These measures correlate with, but are different from, existing proxies of attention. Our empirical results strongly support the position that investors display a negativity bias in attention allocation with respect to extreme stock returns. Across all specifications, lagged negative extreme returns are stronger predictors of high attention at the individual‐stock and stock market levels than positive ones.