Investor Attention,Idiosyncratic Risk And Stock Price Crash Risk

Idiosyncratic risk has always been one of the hot topics in the field of finance,the accumulation of firm-level risk could lead to the crash of stock price,which has been widely concerned by scholars in recent years.In this paper,we construct monthly and annual investor attention index through Baidu search index,by using the sample of companies listed on the Shanghai and Shenzhen Stock Exchanges to investigate the impact of investor attention that exerts on those firms' monthly idiosyncratic risk and annual stock price crash risk in the current period respectively.By using the panel data of Chinese listed firms from 2011 to 2017,we find some evidence of the significant influential power of investor attention on firms' idiosyncratic risk and stock price crash risk.For every additional standard deviation,monthly investor attention can increase the standard deviation of the sample by 13.4% for the idiosyncratic risk in the current month;And for every additional standard deviation,annual investor attention can reduce the standard deviation of the sample by 10.89% for the stock price crash risk of the current year.The impact power of investor attention outperforms several important financial indicators such as firm scale,book-to-market ratio and ROA.With the consideration of the robustness test of endogenous,regression method,index construction method,omission variables bias and treatment effect,the research conclusion is still robust.On this basis,this paper further groups firms by their crosssectional characteristics to examine the more precisely impact of investor attention on those firms.By comparing with the attention and investor sentiment proxies that proposed in the existing studies,the validity of effectiveness of our investor attention indicator has been proved.Quantile regression was applied to study the conditional distribution characteristics of firm idiosyncratic risk and stock price crash risk based on investor attention.The main innovations and contributions of this paper are listed as follows from four aspects:(1)A new factor that affact idiosyncratic risk has been found.Investor attention can improve market efficiency,speed up the reaction process of information in price,and influence the idiosyncratic risk of firm from the perspective of limited arbitrage.It also supplements the existing literature on idiosyncratic risk research.(2)A more effective variable has been constructed as the proxy of investor attention,which better explains the risk of stock price crash than news,analyst focus,announcement,etc.The active search behavior of investor impedes the firm managers from hiding bad news,thus effectively reducing the risk of stock price crash.(3)This paper further investigates the effect of investor attention on grouping companies with different cross-sectional features,and finds that the external supervision has the strongest effect on those small growth companies.(4)The transmission mechanism of investor attention among stock price crash risk and idiosyncratic risk has been found.The investor attention exerts impact on the stock price crash risk by effecting the firm-level idiosyncratic risk.