Market Returns and a Tale of Two Types of Attention

Abstract

We find that aggregate retail attention to firms (ARA) strongly and negatively predicts future market returns, especially in down markets and during high VIX periods. In contrast, aggregate institutional attention to firms (AIA) weakly but positively predicts future market returns. Periods of high ARA are associated with greater net buying by retail investors. On the other hand, AIA leads ARA, and AIA’s positive market return predictability is stronger when retail investors are inattentive or ahead of major news announcements. Our results suggest that attention facilitates institutional investors’ acquisition of valuable information, while retail attention delays the diffusion of negative news.