An Investigation Of Abnormal Volatility Caused By Limited Attention

The premise of behavioral finance is that conventional financial theory ignores how real people make decisions and that people make a difference. A growing number of economists have come to interpret the anomalies literature as consistent with several "irrationalities" individuals exhibit when making complicated decisions.The discussion up to now has suggested that people can have difficulty processing information in certain situations. Investors change their risk evaluation and expectation of stock by information obtaining. Aid by information on attention, investors choose their securities portfolio, so, researching about attention play an important role in stock investment. Under background of that information is relatively excessive compared to attention, this paper attempts to examine a special attention-grabbing event, we utilize the stock trading data from Shanghai stock from May to November in2011and find that the portfolio constructed according to the list of "abnormal movement" published in shanghai stock exchange, can earn the abnormal return after the "abnormal day". But, the abnormal return will reverse at once.An event study is the main method of this paper. It describes a technique of empirical financial research that enables an observer to assess that impact of a particular event on a firm’s stock price. The general strategy in event studies is to estimate the abnormal return around the date that new information about a stock is released to the market and attribute the abnormal stock performance to the new information. The first step in the study is to estimate the normal return in the prior period. Next the information release dates for each finn are recorded. Finally, the abnormal returns of each firm surrounding the announcement date are computed, and the statistical significance and magnitude of the typical abnormal return is assessed to determine the impact of the newly released information. After analyzing the two effects through the method of substantial evidence, we find that the effect caused by "extreme movement" make a good job, but the effect caused by "abnormal list" play the role of the opposite.