Essays on investor attention

Abstract

This thesis investigates the impact of firm centrality and macroeconomic uncertainty on attention allocation decisions of investors. First, we examine whether investor attention towards stocks is related to firm centrality in the input-output network. Using a data set of US firms’ principal customers, we find that stock prices do not promptly incorporate news about principal customers, generating return predictability which diminishes with the customer firm centrality levels. We show that this result is driven by limited investor attention. The evidence reveals that customer firms occupying more central positions in the network receive more investor attention. The results indicate that centrality effect is distinct from size effect. Our findings suggest that more central firms are associated with greater financial analyst coverage and greater institutional investor equity holdings. Second, we examine two competing theoretical models regarding the impact of macroeconomic uncertainty on investor attention to firm specific news. Kacperczyk et al. (2016) show that attention to firmspecific news decreases with the macroeconomic uncertainty, while Andrei et al. (2020) document that investor attention to firm-level news increases with the economic uncertainty. In line with the former hypothesis, we demonstrate that institutional investors raise their attention to customer news as economic uncertainty declines. However, there is no evidence of a meaningful association between retail attention to customer news and market-level uncertainty. We also find that stock prices incorporate customer news more quickly in times of low uncertainty, which is attributable to high institutional attention. During times of high uncertainty, stock prices underreact to customer news, generating return predictability which declines with an increase either in institutional attention or retail attention.