Dynamic Attention Behavior Under Return Predictability

We investigate the dynamic problem of how much attention an investor should pay to news in order to learn about stock-return predictability and maximize expected lifetime utility. We show that the optimal amount of attention is U-shaped in the return predictor, increasing with both uncertainty and the magnitude of the predictive coefficient and decreasing with stock-return volatility. The optimal risky asset position exhibits a negative hedging demand that is hump shaped in the return predictor. Its magnitude is larger when uncertainty increases but smaller when stock-return volatility increases. We test and find empirical support for these theoretical predictions. This paper was accepted by Gustavo Manso, finance.

• 저널Management Science · 66(7) · 2906–2928
• 토픽Financial Markets and Investment Strategies · Finance
• DOI10.1287/mnsc.2019.3328
• 저자Daniel Andrei, Michael Hasler