They do, on this evidence. Jiang, Liu, Peng and Wang find that returns to financial market tend to be higher following . The result survives controls for news, and it survives a natural experiment in which a stock market regulation and produce variation in attention that has nothing to do with the anomalies themselves.
point at who is acting. The analysis suggests large traders trade on anomaly signals more aggressively when they observe higher attention. What the authors do not do is pick a single explanation. They discuss how far the findings are driven by inattention-driven underreaction, by bias amplification, or by coordinated arbitrage, and leave the three in play.
Market anomalies are return patterns that standard asset pricing models cannot account for, and the common explanation is inattention: they persist because not enough people are looking. Jiang, Liu, Peng and Wang investigate the relationship between investor attention and these anomalies directly, and the direction of their result is the interesting part.
Anomaly returns tend to be higher following high-attention days. That is the opposite of what a pure inattention story predicts, so the authors spend considerable effort ruling out the obvious objection. The result is robust after controlling for the effect of news, which is the first thing attention would otherwise be measuring.
The stronger test is a natural experiment. A stock market regulation, together with rounding errors, generates exogenous variation in attention: changes in how much notice a stock receives that are unconnected to its fundamentals or to any anomaly signal. The relationship holds in that setting too, which is what moves the finding beyond correlation.
Order imbalances then point at a mechanism. The analysis suggests large traders trade on anomaly signals more aggressively upon observing higher attention. The authors are careful about what that proves: they discuss the extent to which their findings are driven by inattention-driven underreaction, bias amplification, or coordinated arbitrage, and leave all three open. One caution follows from that candor. The pattern is established, the cause is not.
wat. The anomaly paid best just after the market was paying attention.
wat wat
Anomalies are usually explained as things the market has not noticed. Finding that they pay more right after everyone noticed turns that story around.
How do we know?
Anomaly returns were related to measures of investor attention, with controls for news, a natural experiment using a market regulation and rounding errors as exogenous variation, and an analysis of order imbalances.
What is still unknown
The paper identifies the pattern but not its cause: it weighs three candidate mechanisms rather than establishing one. Attention is also a proxy, and anomaly returns depend on how the anomalies are constructed.
Learn something?
Where to next
What happened to a share after more people searched for it online?markets
What happens to an important report when many companies publish on the same day?markets
Why is it so hard to say what color a word is printed in?attention