Dedicated vs Transient: Not all institutional attention is good attention

摘要

Though active institutional investors play a predominant role in stock price discovery, little is known about the real effects of the attention they pay to individual stocks. We find that exogenous reductions in the attention paid by dedicated institutions cause decreases in information production, which, in turn, worsens the stock's liquidity and informational price efficiency, ultimately resulting in a higher cost of capital and less real investment. Exogenous reductions in attention paid by transient institutions reduce informed trading and improve equity market quality. We infer that active institutional investor attention has important real causal effects that vary by institution type.