The effect of attention on buying behavior during a financial crisis: Evidence from the Taiwan stock exchange

a r t i c l e i n f o Keywords: Trading volume Buy–sell imbalance Financial crisis We confirm that investors in different categories have different trading patterns caused by attention-grabbing factors. Stocks with extreme one-day returns catch the attention of both individual and institutional investors. Individual investors are net buyers of losers whereas institutional investors are net buyers of winners. Unlike institutional investors, individual investors also regard volume as a conditional attention-grabbing factor. We also find that attention-driven buying behavior is mitigated by the financial crisis of 2007, which indicates that the buying behavior of investors is less emotional during a period of financial crisis. This paper examines the attention-driven buying behavior of different types of investors. When there are many choices, options that attract attention are more likely to be considered and chosen. Investors are more likely to buy the stocks which grab their attention. Barber and Odean (2008) find that individual investors are net buyers of stocks with extremely high volume and extreme returns, whether positive or negative. However, is there an interaction between attention-grabbing factors? Is the attention-driven buying behavior strengthened or mitigated by the market situation? We first examine the attention-grabbing behavior of different types of investors by observing the relationship between buy–sell imbalances and the prior day's volumes and returns and further investigate whether the financial crisis has influenced such behavior. The term 'attention-grabbing' was first coined by Barber and Odean (2008). Attention-grabbing stocks refer to those in the news, those experiencing high abnormal trading volume, and those with extreme one-day returns. Previous research tends to view individuals and institutions differently. Institutions are commonly viewed as informed investors, and individuals are believed to have psychological biases and are often thought of as proverbial noise traders (Black, 1986; Kyle, 1985). Barber and Odean (2008) confirm that individual investors are net buyers of attention-grabbing stocks, while institutional investors are least influenced by attention. However, it is interesting to note that Barber and Odean (2008) find that both extreme positive and extreme negative returns lead to significant buying behavior. Based on the work of Barber and Odean (2008), we analyze a complete dataset, which contains all trading records of all investors on the Taiwan Stock Exchange (TSE). Our which includes the pre-crisis and in-crisis periods. The dataset contains the entire transaction data and the identity of each trader in the Taiwan stock market, which means that …