Research seminars

"Glued to the TV: The Trading Activity of Distracted Investors"

Finance

Speaker: Joel Peress
INSEAD

5 March 2015

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We investigate how distraction affects the trading behavior of retail investors, and ultimately market liquidity. Exploiting episodes of sensational news exogenous to the stock market, we first document that investors stop trading altogether when they are distracted. We report further that these effects are more pronounced for more overconfident–i.e., single-male and active–investors, who are typically viewed as noise traders. We then exploit these sensational news events to study how shocks to noise trading affect the stock market at large and in particular its liquidity. Our results are most consistent with an adverse selection model of price impact, and are weakly supportive of inventory risk models.

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