In class, we have discussed several studies that find evidence of investor inattention. Among these were (1) the Barber and Odean (2000) article, showing that retail investors tend to buy stocks when they have experienced extreme performance (good or bad) or high trading volume in the recent past; (2) the Cohen and Frazzini (2008) article, showing that news about customer firms is only slowly incorporated into the prices of their respective suppliers; (3) and the DellaVigna and Pollet (2009) article, showing that stock prices react more slowly to earnings surprises when the announcement occurs on a Friday compared to when it occurs on another weekday.

a) There are different reasons why investors can be inattentive to information. Give three different reasons for (in)attention and describe a consequence of that type of inattention in financial markets?

b) Is inattention always irrational? Briefly explain why your answer is a Yes or a No.

Answer rating: 100% (QA)

a Three different reasons for investor inattention in financial markets are 1 Limited Attention Inve... View the full answer