In this study, Professor Brad Barber and co-author Terrance Odean from UC Berkeley confirm the hypothesis that individual investors are net buyers of attention-grabbing stocks, e.g., stocks in the news, stocks experiencing high abnormal trading volume, and stocks with extreme one day returns.

Attention-driven buying results from the difficulty that investors have searching the thousands of stocks they can potentially buy. Individual investors don’t face the same search problem when selling because they tend to sell only stocks they already own. We hypothesize that many investors only consider purchasing stocks that have first caught their attention. Thus, preferences determine choices after attention has determined the choice set.

This paper won Barber and Odean Best Conference Paper from the European Finance Association.