The Effect Of Individual Investors' Limited Attention Over The Price-amount Of Gem Market

Kahneman proposed the Resource Constraints Theory in his book Attention and Effort in 1973,which argued that the total amount of individual's mental resources is limited and individual will base on a certain amount of resources and the output changes in quality to allocate sufficient mental resources to these tasks when processing several tasks at the same time.Herbert A.Simon in his book Administrative Behavior also mentioned that the world today was always pouring a large amount of information(up to a million bits per second)to us,and in this millions of bits of information human can only process about 50 bits.In the 21 st century today,the amount of information around us has been experienced a tremendous change,in face of the vast ocean of information,human's ability to process information is still scarce.Based on this,researchers have become more and more interested in the filed of investors' s limited attention in a long run.Individual investors' limited attention is a subfield of behavioral finance,which focuses on how individual's limited ability and energy affect their trading behavior and ultimately affect the asset-pricing under the massive information resources.Early studies in this field adopt trading volume,turnover,advertising expense,news and daily price movement limits as proxy of investors attention,but these proxies are indirectly measure the investor attention.With the development of the Internet,scholars began to use the Internet Index to directly measure the investor attention,such as Google Search Volume Index,Baidu index and so on.We measures the attention-level on stocks based on the daily data of the attention-level from hexun.com,and makes an empirical test of the impact of China investors' limited attention on the market behavior of GEM based on the individual fixed-effect model.The empirical process of this paper mainly has the following aspects:First,we examine the effect of individual investors' attention on the liquidity and returns of the GEM.Based on the improved Fama's model,after controlling the market index,size and the market-to-book ratio,we adapt the individual investors' limited attention as the main explanatory variable,and we use individual fixed-effect model to regress the volume,turnover and stock returns respectively.The results show that individual investors' limited attention has a significant positive impact on the liquidity of the GEM,and individual investors' attention has a positive impact on the current return of the stock,but this impact will be reversed in a short period.Then we study the influence of individual investors' limited attention in different market conditions on the liquidity and stock returns.We firstly divide our sample into bull and bear markets.We also exam the correlation of individual investors' attention and the trading indicators of GEM under different markets.We find that all indicators in the bull market had stronger relationship with individual investors' attention,and stocks experienced big change rat of the bull market also had a stronger relationship with individual investors' attention than the smaller bull market.In the following,we study the influence of the individual investors in the bear market on the market liquidity of the GEM.The empirical results show that the liquidity index of the bull market has a significant positive impact on the GEM.Finally,we examine the impact of individual investors' limited attention on the return of the GEM in different market conditions,the results show that individual investors' attention has a negative impact to the GEM in bull market,but in the next day,individual investors' attention will have a positive impact on the stock returns of the GEM.The conclusions of this paper provide some reference for the main body of different positions.Individual investors should know their limited ability of receive and process information,think twice when making investment decisions,avoid Herd Behavior.Supervision department should improve the information disclosure system,strengthen the risk warning of small investors,optimize market efficiency.