Investigation Of The Feedback Effect And Market Microstructure Of Financial Market Based On Limited Investor Attention

The resource allocation function is the main function of the financial market and plays a key role in realizing the goal that financial services for the real economy.Thus,how to improve the efficiency of resource allocation in the financial market has become a core issue in current economic and financial research.Meanwhile,in the presence of limited attention,investor attention significantly affects investors’information acquisition,leading to a great impact on the financial market.Therefore,in the era of big data,investor attention has become an important factor that investors,firms,and governments should consider when making decisions.For investors,in the presence of massive data and limited attention,reasonable attention allocation can help investors obtain more information advantages,thereby increasing their expected returns.For firms and governments,the increase in the total amount of data has also increased the difficulty of government supervision and corporate investment decisions,highlighting the value of the financial market’s information feedback function.Therefore,investors’ attention has indirectly become an important factor in the decision-making of firms and governments.Because of the importance of investor attention,this paper develops a theoretical framework that includes limited investor attention,corporate investment decisions,and financial markets,to explore the interaction mechanism between investor attention,corporate investment decisions,and financial markets from a theoretical perspective.In addition,from the perspective of informed trading,this paper conducts theoretical research and empirical analysis on the relationship between institutional investors’ attention,asset value transparency,and financial market microstructure,thereby providing theoretical explanations and empirical evidence for the interaction mechanism among them.The main research work of this paper is summarized as follows:Firstly,to explore the relationship between investor attention and corporate investment decisions,this paper builds a noise rational expectation equilibrium model that considers the feedback effect from the financial market and the investors’limited attention.At the same time,by further considering the correlation between the firm’s investment project and assets in place,this paper can better describe the complexity of managers’ investment decisions,which has important practical value for company decision-making.By quantitatively analyzing investment probability,investment efficiency,and expected return on investment,this paper not only provides new theoretical explanations and supplements for existing literature,but also reveals the relationship between investor attention and corporate investment decisions.Secondly,by further allowing investors to allocate attention resources endogenously,this paper constructs a noise rational expectation equilibrium model considering the optimal allocation of investors’ attention and risky assets containing multidimensional uncertainties,aiming to discuss the interactions between investors’ attention allocation and financial market microstructure.This paper finds that both market’s price discovery ability and the asset’s risk characteristics are significant factors for the investors’ attention allocation,so the interaction between them jointly determines the microstructure of financial markets.In addition,this paper analyzes the influence of various market-related factors on the optimal allocation of investor attention,market price information content,and market liquidity.Furthermore,this paper summarizes a series of policy recommendations,which helps governments improve the market’s information environment and risk tolerance more effectively.Lastly,to better understand the role of institutional investors’ attention in financial markets,this paper introduces the limited attention problem into the framework of informed trading from discrete single-period and continuous time perspectives and obtains equilibrium analytical solutions.Through the static analysis of the key market variables in the equilibrium state,this paper finds that the increase in the attention of institutional investors increases the informativeness of market price but reduces market liquidity.In addition,by introducing asset value transparency into the continuous-time informed transaction model,this paper further studies the interaction mechanism between asset value transparency,institutional investors’ attention,and the microstructure of financial markets.Based on this mechanism,this paper provides a unified theoretical explanation for the complex relationship between public news and market liquidity from the perspective of informed trading.At the same time,by relaxing assumptions and carrying out empirical tests,this paper further confirms the robustness of these results.