Investor attention, overconfidence and category learning

Motivated by psychological evidence that attention is a scarce cognitive resource, we model investors’ attention allocation in learning and study the effects of this on asset-price dynamics. We show that limited investor attention leads to category-learning behavior, i.e., investors tend to process...

Full description

Saved in:
Bibliographic Details
Published in:Journal of financial economics 2006-06, Vol.80 (3), p.563-602
Main Authors: Peng, Lin, Xiong, Wei
Format: Article
Language:English
Subjects:
Behavioral biases
Behavioral decision theory
Category effects
Comovement
Impact analysis
Investment policy
Limited attention
Predictions
Psychological aspects
Rational expectations
Return predictability
Studies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
cited_by cdi_FETCH-LOGICAL-c512t-3d7978f5734b7ce880df630d1f7500872fb990de5af5dd12460884751fa66fa13
cites cdi_FETCH-LOGICAL-c512t-3d7978f5734b7ce880df630d1f7500872fb990de5af5dd12460884751fa66fa13
container_end_page 602
container_issue 3
container_start_page 563
container_title Journal of financial economics
container_volume 80
creator Peng, Lin
Xiong, Wei
description Motivated by psychological evidence that attention is a scarce cognitive resource, we model investors’ attention allocation in learning and study the effects of this on asset-price dynamics. We show that limited investor attention leads to category-learning behavior, i.e., investors tend to process more market and sector-wide information than firm-specific information. This endogenous structure of information, when combined with investor overconfidence, generates important features observed in return comovement that are otherwise difficult to explain with standard rational expectations models. Our model also demonstrates new cross-sectional implications for return predictability.
doi_str_mv 10.1016/j.jfineco.2005.05.003
format article
fullrecord <record><control><sourceid>proquest_cross</sourceid><recordid>TN_cdi_proquest_journals_231723846</recordid><sourceformat>XML</sourceformat><sourcesystem>PC</sourcesystem><els_id>S0304405X05002138</els_id><sourcerecordid>1040892641</sourcerecordid><originalsourceid>FETCH-LOGICAL-c512t-3d7978f5734b7ce880df630d1f7500872fb990de5af5dd12460884751fa66fa13</originalsourceid><addsrcrecordid>eNqFUMtKBDEQDKLg-vgEYfDsrJ3J5DEnEfHJghcFbyEmHc2gyZoZF_bvzTDi1aar-1JV3RQhJxSWFKg475e9DxFtWjYAfDk1sB2yoEp2dSNlu0sWwKCtW-Av--RgGHooJXm3IOo-bnAYU67MOGIcQ4pnVdpgtin64DBarEx0lTUjvqW8rT7Q5Bji2xHZ8-ZjwOPffUieb66fru7q1ePt_dXlqracNmPNnOyk8lyy9lVaVAqcFwwc9ZIDKNn4164Dh9x47hxtWgFKtZJTb4TwhrJDcjr7rnP6-i6v6j5951hO6oZR2TDVikLiM8nmNAwZvV7n8GnyVlPQU0a6178Z6SkjPTWwonuYdRnXaP9EiDiz9UYzo6CMbUFRirJCAStYF3DBtIBGv4-fxexiNsMSxyZg1oMNU4AuZLSjdin8884PyGeKvA</addsrcrecordid><sourcetype>Aggregation Database</sourcetype><iscdi>true</iscdi><recordtype>article</recordtype><pqid>231723846</pqid></control><display><type>article</type><title>Investor attention, overconfidence and category learning</title><source>International Bibliography of the Social Sciences (IBSS)</source><source>ScienceDirect Journals</source><creator>Peng, Lin ; Xiong, Wei</creator><creatorcontrib>Peng, Lin ; Xiong, Wei</creatorcontrib><description>Motivated by psychological evidence that attention is a scarce cognitive resource, we model investors’ attention allocation in learning and study the effects of this on asset-price dynamics. We show that limited investor attention leads to category-learning behavior, i.e., investors tend to process more market and sector-wide information than firm-specific information. This endogenous structure of information, when combined with investor overconfidence, generates important features observed in return comovement that are otherwise difficult to explain with standard rational expectations models. Our model also demonstrates new cross-sectional implications for return predictability.</description><identifier>ISSN: 0304-405X</identifier><identifier>EISSN: 1879-2774</identifier><identifier>DOI: 10.1016/j.jfineco.2005.05.003</identifier><identifier>CODEN: JFECDT</identifier><language>eng</language><publisher>Amsterdam: Elsevier B.V</publisher><subject>Behavioral biases ; Behavioral decision theory ; Category effects ; Comovement ; Impact analysis ; Investment policy ; Limited attention ; Predictions ; Psychological aspects ; Rational expectations ; Return predictability ; Studies</subject><ispartof>Journal of financial economics, 2006-06, Vol.80 (3), p.563-602</ispartof><rights>2005 Elsevier B.V.</rights><rights>Copyright Elsevier Sequoia S.A. Jun 2006</rights><lds50>peer_reviewed</lds50><oa>free_for_read</oa><woscitedreferencessubscribed>false</woscitedreferencessubscribed><citedby>FETCH-LOGICAL-c512t-3d7978f5734b7ce880df630d1f7500872fb990de5af5dd12460884751fa66fa13</citedby><cites>FETCH-LOGICAL-c512t-3d7978f5734b7ce880df630d1f7500872fb990de5af5dd12460884751fa66fa13</cites></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Tsyndetics_thumb_exl</thumbnail><link.rule.ids>315,786,790,27957,27958,33258</link.rule.ids><backlink>$$Uhttp://econpapers.repec.org/article/eeejfinec/v_3a80_3ay_3a2006_3ai_3a3_3ap_3a563-602.htm$$DView record in RePEc$$Hfree_for_read</backlink></links><search><creatorcontrib>Peng, Lin</creatorcontrib><creatorcontrib>Xiong, Wei</creatorcontrib><title>Investor attention, overconfidence and category learning</title><title>Journal of financial economics</title><description>Motivated by psychological evidence that attention is a scarce cognitive resource, we model investors’ attention allocation in learning and study the effects of this on asset-price dynamics. We show that limited investor attention leads to category-learning behavior, i.e., investors tend to process more market and sector-wide information than firm-specific information. This endogenous structure of information, when combined with investor overconfidence, generates important features observed in return comovement that are otherwise difficult to explain with standard rational expectations models. Our model also demonstrates new cross-sectional implications for return predictability.</description><subject>Behavioral biases</subject><subject>Behavioral decision theory</subject><subject>Category effects</subject><subject>Comovement</subject><subject>Impact analysis</subject><subject>Investment policy</subject><subject>Limited attention</subject><subject>Predictions</subject><subject>Psychological aspects</subject><subject>Rational expectations</subject><subject>Return predictability</subject><subject>Studies</subject><issn>0304-405X</issn><issn>1879-2774</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2006</creationdate><recordtype>article</recordtype><sourceid>8BJ</sourceid><recordid>eNqFUMtKBDEQDKLg-vgEYfDsrJ3J5DEnEfHJghcFbyEmHc2gyZoZF_bvzTDi1aar-1JV3RQhJxSWFKg475e9DxFtWjYAfDk1sB2yoEp2dSNlu0sWwKCtW-Av--RgGHooJXm3IOo-bnAYU67MOGIcQ4pnVdpgtin64DBarEx0lTUjvqW8rT7Q5Bji2xHZ8-ZjwOPffUieb66fru7q1ePt_dXlqracNmPNnOyk8lyy9lVaVAqcFwwc9ZIDKNn4164Dh9x47hxtWgFKtZJTb4TwhrJDcjr7rnP6-i6v6j5951hO6oZR2TDVikLiM8nmNAwZvV7n8GnyVlPQU0a6178Z6SkjPTWwonuYdRnXaP9EiDiz9UYzo6CMbUFRirJCAStYF3DBtIBGv4-fxexiNsMSxyZg1oMNU4AuZLSjdin8884PyGeKvA</recordid><startdate>20060601</startdate><enddate>20060601</enddate><creator>Peng, Lin</creator><creator>Xiong, Wei</creator><general>Elsevier B.V</general><general>Elsevier</general><general>Elsevier Sequoia S.A</general><scope>DKI</scope><scope>X2L</scope><scope>AAYXX</scope><scope>CITATION</scope><scope>8BJ</scope><scope>FQK</scope><scope>JBE</scope></search><sort><creationdate>20060601</creationdate><title>Investor attention, overconfidence and category learning</title><author>Peng, Lin ; Xiong, Wei</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c512t-3d7978f5734b7ce880df630d1f7500872fb990de5af5dd12460884751fa66fa13</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2006</creationdate><topic>Behavioral biases</topic><topic>Behavioral decision theory</topic><topic>Category effects</topic><topic>Comovement</topic><topic>Impact analysis</topic><topic>Investment policy</topic><topic>Limited attention</topic><topic>Predictions</topic><topic>Psychological aspects</topic><topic>Rational expectations</topic><topic>Return predictability</topic><topic>Studies</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Peng, Lin</creatorcontrib><creatorcontrib>Xiong, Wei</creatorcontrib><collection>RePEc IDEAS</collection><collection>RePEc</collection><collection>CrossRef</collection><collection>International Bibliography of the Social Sciences (IBSS)</collection><collection>International Bibliography of the Social Sciences</collection><collection>International Bibliography of the Social Sciences</collection><jtitle>Journal of financial economics</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Peng, Lin</au><au>Xiong, Wei</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Investor attention, overconfidence and category learning</atitle><jtitle>Journal of financial economics</jtitle><date>2006-06-01</date><risdate>2006</risdate><volume>80</volume><issue>3</issue><spage>563</spage><epage>602</epage><pages>563-602</pages><issn>0304-405X</issn><eissn>1879-2774</eissn><coden>JFECDT</coden><abstract>Motivated by psychological evidence that attention is a scarce cognitive resource, we model investors’ attention allocation in learning and study the effects of this on asset-price dynamics. We show that limited investor attention leads to category-learning behavior, i.e., investors tend to process more market and sector-wide information than firm-specific information. This endogenous structure of information, when combined with investor overconfidence, generates important features observed in return comovement that are otherwise difficult to explain with standard rational expectations models. Our model also demonstrates new cross-sectional implications for return predictability.</abstract><cop>Amsterdam</cop><pub>Elsevier B.V</pub><doi>10.1016/j.jfineco.2005.05.003</doi><tpages>40</tpages><oa>free_for_read</oa></addata></record>
fulltext fulltext
identifier ISSN: 0304-405X
ispartof Journal of financial economics, 2006-06, Vol.80 (3), p.563-602
issn 0304-405X
1879-2774
language eng
recordid cdi_proquest_journals_231723846
source International Bibliography of the Social Sciences (IBSS); ScienceDirect Journals
subjects Behavioral biases
Behavioral decision theory
Category effects
Comovement
Impact analysis
Investment policy
Limited attention
Predictions
Psychological aspects
Rational expectations
Return predictability
Studies
title Investor attention, overconfidence and category learning
url http://sfxeu10.hosted.exlibrisgroup.com/loughborough?ctx_ver=Z39.88-2004&ctx_enc=info:ofi/enc:UTF-8&ctx_tim=2024-09-21T08%3A29%3A10IST&url_ver=Z39.88-2004&url_ctx_fmt=infofi/fmt:kev:mtx:ctx&rfr_id=info:sid/primo.exlibrisgroup.com:primo3-Article-proquest_cross&rft_val_fmt=info:ofi/fmt:kev:mtx:journal&rft.genre=article&rft.atitle=Investor%20attention,%20overconfidence%20and%20category%20learning&rft.jtitle=Journal%20of%20financial%20economics&rft.au=Peng,%20Lin&rft.date=2006-06-01&rft.volume=80&rft.issue=3&rft.spage=563&rft.epage=602&rft.pages=563-602&rft.issn=0304-405X&rft.eissn=1879-2774&rft.coden=JFECDT&rft_id=info:doi/10.1016/j.jfineco.2005.05.003&rft_dat=%3Cproquest_cross%3E1040892641%3C/proquest_cross%3E%3Cgrp_id%3Ecdi_FETCH-LOGICAL-c512t-3d7978f5734b7ce880df630d1f7500872fb990de5af5dd12460884751fa66fa13%3C/grp_id%3E%3Coa%3E%3C/oa%3E%3Curl%3E%3C/url%3E&rft_id=info:oai/&rft_pqid=231723846&rft_id=info:pmid/&rfr_iscdi=true