Asymmetric Effects of Investor Attention on Stock Returns in Bull and Bear Markets

Using various proxies for investor attention, past studies find that attention-grabbing stocks tend to experience positive price pressure. However, few studies consider the influences of market states. Whether market states affect investor attention has not been fully explored. To fill up the gap, this study explores the attention effect on stock returns across market states using a sample of firms in Taiwan. The findings show that the attention effect varies under different market conditions. Specifically, investors are relatively active when the market expresses good prospects. The attention effect of investors on stock returns is stronger in a bull market than in a bear market. This result suggests a rising stock market draws more investor attention that translates to positive price pressures than a declining stock market does. Therefore, the attention effect is found varying with market states.