Recent Academic Research
Investor attention's impact on momentum and economic data, analyst price revisions and stock returns, and risk compensation for macro tail risk
Investor Attention and Momentum
Investor attention plays a critical yet contrasting role in price and earnings momentum anomalies. Low attention causes investors to underreact to earnings news, driving earnings momentum, while high attention intensifies behavioral biases like overconfidence, boosting price momentum. Using multiple attention measures, including trading volume, institutional searches, media coverage, and social media activity, the authors explore these effects.
Findings:
Price momentum profits significantly increase among high-attention stocks.
Earnings momentum profits notably decrease with higher investor attention.
Trading volume, social media, and Edgar searches amplify price momentum but reduce earnings momentum.
Institutional attention primarily decreases earnings momentum without affecting price momentum.
The dual effect arises as limited attention delays responses to earnings, whereas heightened attention fuels investors' overreaction to price trends.
Hou, Kewei and Loh, Roger and Peng, Lin and Xiong, Wei, A Tale of Two Anomalies: The Implications of Investor Attention for Price and Earnings Momentum (March 03, 2025). Fisher College of Business Working Paper No. 2025-03-008, Charles A. Dice Center Working Paper No. 2025-08, Available at SSRN: https://ssrn.com/abstract=5202255 or http://dx.doi.org/10.2139/ssrn.5202255
Analyst Price Revisions and Stock Returns
Analyst forecasts often differ widely, with investors typically focusing on consensus targets. But this study asks a different question: do the changes in the highest and lowest analyst price targets hold unique insights about stock value?
Using a large dataset of analyst reports from 2006 to 2022, the author analyzes whether changes in the upper and lower bounds of target price ranges provide information beyond traditional analyst metrics like earnings revisions or consensus shifts.
Findings:
Positive changes in the lower bound (the most pessimistic target) yield meaningful information that markets tend to underreact to, and prices adjust more gradually in the days that follow.
Price reactions are strongest when the revisions come from experienced analysts or those who update frequently.
The underreaction to rising pessimistic targets likely occurs because these updates retract earlier negative outlooks, something investors tend to overlook or dismiss initially.
Miwa, Kotaro, Range of Financial Analyst Opinions. Available at SSRN: https://ssrn.com/abstract=5205827 or http://dx.doi.org/10.2139/ssrn.5205827
Investor Attention and Economic Data
When macroeconomic news hits, markets don’t always respond the same way. This paper argues that investor attention plays a key role in how financial markets digest CPI and NFP announcements. Building on a model where investors have limited capacity to absorb all information at once, the authors examine four different scenarios: increased attention to CPI, inflation-driven monetary policy responses, supply versus demand shocks, and variations in informativeness of CPI data.
Findings:
Interest rates and inflation swap rates rise most sharply when investors focus intensely on CPI releases.
Under monetary policy-driven inflation responses, only CPI moves interest rates and inflation swaps, and NFP has little effect.
When inflation is driven by supply shocks, both CPI and NFP releases can lead to rate declines, especially for NFP.
Investor attention spikes most around CPI releases when the data is informative and market-relevant.
Kroner, T. N. (2025, March). How markets process macro news: The importance of investor attention. Finance and Economics Discussion Series 2025-022. Board of Governors of the Federal Reserve System. https://doi.org/10.17016/FEDS.2025.022
Macro Tail Risk and Stock Returns
Most asset pricing models treat recessions as rare events, but this paper takes a different approach. It constructs a macro tail risk measure (how likely and severe the worst macroeconomic outcomes are) and explores its pricing power in the cross-section of stock returns. Unlike traditional volatility-based measures, this new tail risk index captures the downside skewness in expectations of macro variables like industrial production, GDP, and employment. The authors extract this risk from forecast densities produced by professional forecasters and then examine whether stocks with different sensitivities to this risk earn different returns.
Findings:
Stocks that are more exposed to macro tail risk earn significantly higher average returns, consistent with investors demanding compensation for holding assets that perform poorly in bad macro states.
Industries with high employment cyclicality and operating leverage are especially sensitive to this risk, aligning with economic intuition.
The pricing results are stronger during periods with elevated tail risk, particularly in and around recessions.
This pattern arises because investors fear large negative macro shocks and are willing to pay a premium to hedge against such events. Stocks that offer less protection in these tails must offer higher expected returns as compensation.
Chen, Jian and Li, Xiaowei and Liu, Yangshu and Tang, Guohao, Macro Tail Risk and Stock Returns. Available at SSRN: https://ssrn.com/abstract=5186533 or http://dx.doi.org/10.2139/ssrn.5186533
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