Measuring Limited Attention And Its Impact On The Our Stock Market

The internet has spread out with the rapid expansion of information, but the individual’s attention becomes a scarce resource. A few decades ago, Herbert Simon, a famous American political scientist, has pointed out that the growing information leads to our limited attention. It is surprised to find that limited attention can explain many anomalies in the stock market. How to measure limited attention and its impact on China stock market are what we focus on in this paper.The internet searches are found to explore the variable trend of individual’s limited attention. The main advantages of using internet searches are broad reach, timeless and the fact that reflects actions, which is directly related to the stock market. The finds are interesting. First it is proved that attention can drive trading behavior. High attention follows with high liquidity, and high liquidity follows with high attention. Second there is a phenomenon that is called over-attention underperformance in the Shanghai Stock Market. The increase of the attention follows with lower return. Lastly it is found that high searches follow high volatility in the Shanghai Stock Market. But limited attention has no impact on returns and volatility of the Shenzhen Stock Market.