Research On The Effects Of The Attention Of Investors On Investor Trading Behavior

Finance models generally assume that investors have unconstrained cognitive resources and at all times are fully active in processing information and making decisions. However, lots of psychological literature stand against this idea, suggesting that cognitive-processing capacity of human brains have limits. In real world, many participants in financial market, especially retailed investor, can only devote limited attention to their portfolio.When comes to stock selection, attention does change the choice the investors make, and cause the price depart from rational price in short terms. However, with plenty studies on the stock level, there are not enough study about attention effect on market level. In addition, previous studies mainly use indirect indicators, taking the media effect or trading indicator as the proxy for investors attention, so, direct measure of investor attention is less common.The empirical analyses of this study pursue two basic questions: Does market-level attention affect the trading behavior of investors? Does the influence change between bull and bear market?Specifically, this paper take all the A share in Shanghai Security Market as the research subject, using the search volume of "Shanghai Composite Index" to measure the degree of market attention. Empirical research will be conducted based on this measure and the results on the trading behaviors of investors will analyzed to find investors trading patterns. This article take baidu index as a direct measure for investors attention and study the influence of retailed investors attention on trading volume and net buying via ARDL model. The empirical results shows that on market level, inventors attention does make the investor more active. After that, this paper split the sample to bull market and bear market to study the difference.In conclusion, the empirical results found that "the Shanghai index" search index will lead to increased investor trading volume, in another word, the higher investors attention on market causes the higher trading volume. In discussing the difference in bull and bear market, this study shows that trade volume are more sensitive in bull market, while net buying will increase in bull market under attention effects and decrease in bear market.