All That Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors

Source: Barber, B. M. & Odean, T. (2008) · Review of Financial Studies 21(2), 785–818 · doi:10.1093/rfs/hhm079

TL;DR

Individual investors are net buyers of attention-grabbing stocks — those in the news, with

abnormally high trading volume, or with extreme one-day returns (high or low). Because investors can

generally only sell what they already own but can buy from thousands of candidates, attention solves

their search problem on the buy side. Institutions, who search more systematically, show much weaker

attention-driven buying.

In choosing a stock to buy, an investor faces a formidable search problem across thousands of names;

selling is easy because most individuals hold few stocks and don't short. Attention therefore

determines the choice set on the buy side ("preferences determine choices after attention has

determined the choice set"), creating an asymmetry: attention drives buying far more than selling.

This contrasts with standard models in which buying and selling "differ only by a minus sign."

Data: trades from a large discount broker (1991–1996), a large retail broker, and a small

discount broker, plus professional/institutional money managers (samples spanning 1996–1999).

Attention proxies: daily news coverage, abnormal trading volume, and extreme prior-day returns.

Individuals are strong net buyers of high-attention stocks — for both good and bad news, and

across all three proxies. The effect is much weaker or absent for institutions, who face a search

problem on both sides.

A cornerstone of the "attention as data" literature: it motivates using news flow, volume spikes, and

later search/social signals to predict retail order flow and short-horizon price pressure — directly

relevant to text-based and alternative-data signals.

The induced buying pressure is largely transient; turning it into a tradable edge runs into

costs and reversal.

Attention proxies are noisy and have shifted with the rise of online/retail platforms since 2008.

Net buying is measured as a buy–sell imbalance, not a return premium per se.

Barber, B. & Odean, T. (2008) — All That Glitters — Review of Financial Studies

Da, Z., Engelberg, J. & Gao, P. (2011) — In Search of Attention — Journal of Finance

Odean, T. (1999) — Do Investors Trade Too Much? — American Economic Review

Provenance: verified/generated from the paper's full text.