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Contribution Details

Type Master's Thesis
Scope Discipline-based scholarship
Title The Effect of retail Investors' Attention on the Stock Market: An Analysis for Switzerland
Organization Unit
Authors
  • Robert Glauser
Supervisors
  • Ming Deng
  • Thorsten Hens
Language
  • English
Institution University of Zurich
Faculty Faculty of Business, Economics and Informatics
Number of Pages 32
Date 2019
Zusammenfassung I. Issue Classical economic theory assumes people are driven primarily by material incentives and make rational decisions based on these factors. However, Kahneman (1973) pointed out that the amount of information available today is much greater than people can absorb, and that attention is a scarce resource. Therefore, many market participants, particularly individual investors, can devote only limited attention to their portfolios. Market-wide attention-grabbing events could cause investors to pay increased attention to their portfolios, thereby increasing trading activity and, in turn, influencing stock prices. II. Objective The objective of this thesis is to investigate the impact of retail investor attention on the stock market. Since attention is difficult to quantify, Google Trends data is used as a proxy for investor attention. Restricting this study to Switzerland, I examine the relationship between retail investor attention in Switzerland and the Swiss stock market. The null hypothesis is that stock prices from the Swiss Performance Index have not systemically been affected by attention against the alternative hypothesis that stock prices have systemically been affected by attention. Rejection of the null hypothesis supports the idea, that investor’s attention and psychology systematically influence security markets, and supports models of asset pricing, which include behavioral variables. Moreover, rejection of the null hypothesis stands in contrast to the efficient market theory and argues, that security markets cannot be fully rational. III. Methodology The first part of this thesis gives an overview of the relevant literature and papers on the subject by discussing important studies and their results. Concerning the examination, correlation analysis and several regression models, i.e. vector autoregression, panel data, and Fama-MacBeth models, are used to investigate the relationship between attention and stock returns. IV. Results The results of the correlation analysis suggest a mostly positive relationship between attention variables and stock market data regarding Switzerland. Concerning the regression analysis with different attention parameters, the results are quite robust. These findings lead to the conclusion that the positive price pressure effect found in the various regression models is significant and robust for the time interval of six trading days. Consequently, an increase in attention has the highest impact on positive price pressure, i.e. abnormal returns, after six days. In view of these considerations, this study provides a significant relationship between attention variables, specifically ASVI and turnover, and stock market returns that operates through retail investor attention, at least for the case of Switzerland.
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