The Impact Of Investor Attention On The Performance Of The Stock Market

Modern financial theory is based on the Markowitz's portfolio theory and Fama's efficient market hypothesis, it has formed a unified analysis of a classic paradigm. It has several major classical assumptions:rational man, effective information and homogeneous subject, which means that financial market participants can obtain the market information with zero cost and no difference, and to establish a set of logical rationality analysis framework to make a decision, the different individuals is completely consistent in endowments and risk level. However, in the actual situation, it is very difficult to satisfy these assumptions, some market anomalies can not be explained by the traditional theory of financial assets. The rise of behavior finance and the theory of information asymmetry, and a combination of psychology and other contents, which take the investor psychological deviation and behavior into theory system, has produced a series of innovative research topics. The 2002 Nobel prize winner Daniel Kahneman put forward an important concept of behavioral finance in his book "Attention and Effort" (1973), namely, limited attention theory. He believes that people's attention is limited and selective, individuals are not fully rational in the face of information, they will allocate limited attention resources to the information which valuable. Market participants is not only in the face of the external conditions of excitation, but also the influence of psychological and behavioral aspects will affect an individual's decision, the prices of financial assets that can be observed and may not a true reflection of the all open market information and the actual value. The analysis of limited attention of investors provides a new direction for modern financial theory research.One of the main problems in this field is how to separate the pure attention effect among the many factors in the market, and find a reasonable variable to quantify the degree of concern. Early scholars usually use market information, media coverage and advertising expenditures as the indirect agency variables of investor attention. But there are some "noise" in the classical variables, such as media reports can not read by every market participants,and the influence on the individual will exist differences. With the rapid development of Internet technology and the advent of the era of big data, which makes possible for us to find out the agglomeration behavior of the individual, characteristics and trend of changes. Search engines is the entrance to access the information, the majority of individual investors usually use the search engines to obtain information about the market and the company. When the Investors start to search on website, which means his attention has began to focus on the company, and is likely to be transformed into a series of acts of transactions, so the search engine index is a perfect measure of individual investor's attention. Baidu has a dominant position in the search engine market of China, use Baidu Index to measure the attention of individual investors in China has become a good choice. So this paper is to study the relationship between individual investor attention and stock market performance based on Baidu Index.This paper use the theoretical literature analysis, econometrics and portfolio analysis to study of the relationship between Baidu Index and stock market performance, the full context is divided into five parts, each part of the contents is as follows:The first chapter mainly introduces the research background, content and significance of the paper, and it introduces the research methods of the structure are described. The second chapter mainly focus on investors'attention theory, a review of the relevant literature, the past research progress on proxy variables of investor's attention, and then analysis research status of the search index as a proxy variable of investor attention, In the third chapter, the Shenzhen Small and medium-size Enterprise Stock Market data is used to study the relationship between the Badidu index and stock return rate, trading volume and turnover rate of the market indicators. The result shows that Baidu Index on behalf of investor attention has a significant impact on stock market performance. In the fourth chapter, the investment trading strategy based on investor attention is established, and the profit of investment strategy is studied by using the investment portfolio analysis method. The fifth chapter summarizes the research results of the full text, and analyzes the shortcomings of the study, and the future research direction.Using the panel data of selected 209 companies on SME in January 72013 to July 72014, empirical models are settled to study the impact of investors'attention on stock performance. The result shows that:(1) There is a significant correlation between the investor attention and the performance of the stock market, and the high degree of attention will have a positive impact on the stock return, abnormal return at the same period. (2)The premium effect of investors" attention will reversal in a short period of time. There is a significant positive correlation between Investor attention and the stock trading volume, turnover rate and liquidity, which will not diminish in a short time. (3)Investor attention has a significant positive impact on the intraday volatility and inter day volatility of the stock. Non-trading day investor attention also has a significant impact on the rate of change in the stock price. (4)The investment trading strategy based on the investor attention effect, namely, buying low-attention and selling high-attention stock portfolio. The results showed that after the control of the influence of MRF, SMB and HML, the portfolio will still be able to get significant excess income.In this paper, the research Angle has certain novelty. The behavioral finance field usually use the extreme return, media coverage and advertising expenditures as proxy variables of investor attention. The domestic literature on the measurement of investor's attention based on search data engine is relatively small. This paper uses the investment portfolio analysis method to test the zero investment portfolio based on the investor attention, the market performance can be significantly better than the market index, and get the excess return. Strategy Research of the investor's attention may expanded the ideas for the future research directions on the investment strategy, using more comprehensive index to the analysis of investors concerned about the effect and process to guide the actual market investment decisions. In fact, some hedge fund products based on large data systems strategy have already founded in foreign countries, there is also has similar fund such as Guangfa Baifa big data (Guangfa fund and Baidu company) to use Internet data to quantify investor attention and emotion, to forecast the investment behavior to build a portfolio, trying to obtain excess returns. Of course. Since the time is short, the performance remains to be test by market. And the future research can focus on the changes in asset prices and the specific influential mechanism of investor attention. The point is to establish a more reasonable proxy variables of attention by using data mining technology and new Internet tools, give more suggestions and opinions for the medium and small investors in the investment decision-making and risk control, to protect the interests of small and medium-sized investors more effectively.