Expected Information Consumption, Spillovers, and Cross-Sectional Returns
Summary
This research summary describes a method for predicting which stocks will attract institutional attention when other firms make scheduled announcements or when macroeconomic news arrives. It measures past attention spikes using news searches and reading activity, then constructs expected information consumption (EIC) indicators for peer announcements and macro events. Stocks flagged by these measures subsequently show higher average returns on relevant event days, including when the announced information is not conditioned on being positive or negative.
The reported evidence uses U.S. equities from 2010 to 2017 and includes return regressions, calendar-time portfolios, and CAPM comparisons. EIC-positive stocks have higher event-day returns, and CAPM describes their returns more effectively than those of EIC-negative stocks, a pattern the authors interpret as consistent with compensation for risk. Tests find no robust immediate reversal or clear support for mispricing as the explanation. The summary acknowledges that the relatively short sample cannot rule out longer-term price reversal and cannot distinguish rational risk compensation from behavioral mechanisms. The results come from historical foreign-market research and do not establish that the signal will transfer to other markets or periods.
Key ideas
- Past institutional attention spikes around peer or macro announcements are used to predict future information consumption.
- EIC indicators flag stocks expected to absorb information when related scheduled events occur.
- The study reports higher average returns for EIC-positive stocks on relevant event days.
- CAPM fits EIC-positive stock returns more closely, which the authors view as consistent with risk-based compensation.
- The evidence does not settle behavioral explanations or exclude long-term price reversals.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.