A Study Of The Effect Of Billboard Stocks Based On The Limited Attention

As people’s attention is limited,psychological research shows that the focus is obtained at the price of ignoring another.Ordinary investors find it difficult to make a best decision by conducting a comprehensive analysis and comparison,while facing over two thousand stocks.Traders also have to focus on some special stocks and lose attention on others.In this situation,the Billboard stocks would be easier to get into people’s vision, and they will be attempted to invest in these stocks for cheaper costs which maybe the reason that the Billboard stocks can affect the allocation of focus. It is of much theoretical and practical significance to research the term affection of behavior changes caused by the information disclosure and its efficiency.This thesis studies the investor’s different behaviors in front of near good or bad news in two categories. By using samples of the Billboard stocks announced by Shanghai Stock Exchange and the method of event study, it`s found a significant impact by the limited attention theory with examining the significance of the cumulative abnormal return in 28 days. Put the stocks with unusual fluctuations but not revealed as control group. The difference between two ways of reactions is defined as the Effect of Information Disclosure, which equals to the Effect of Billboard Stocks minus the Effect of Unusual Fluctuation.By comparing two time curves of the Effect of Information Disclosure and Unusual Fluctuation,it can judge the efficiency of the Billboard information disclosure mechanism.In the empirical basis of cumulative abnormal return of stock and facing such quasi-good news bought by the return deviation reaching 7%, investors can buy stocks in the first day and sell in the forth day to obtain return of 7.4% which shocks down in the subsequent period of about 20 days; while facing the quasi-bad news brought by amplitude reaching 15%, CAR goes a downward trend from the first day to the fifteenth and falls into a lowest return,-11.84%,followed by reversal. And it’s statistical significant which is agreed by overreaction theory and attention driving trading hypothesis: the investors tend to buy stocks with "significant" features and with attention fading, this phenomenon getsreversed in the long run. By decomposing the Effect of Billboard Stocks, it is found that no matter what kind of abnormal fluctuations,the Effect of Information Disclosure strengthens the Effect of Usual Fluctuation in the short term but reverses in the long run. It shows this information disclosure system fuels the stock volatility in the short term while stabilizes in the long run. This study provides much evidence in practice for investors and regulators.