Philosophy

China

Economics

Computer science

Empirical evidence

Business

Endogeneity

Systematic risk

Political science

Monetary economics

Epistemology

Econometrics

Sociology

Media coverage

Financial economics

Proxy (statistics)

Finance

Machine learning

Media studies

International Review of Financial Analysis

This paper investigates retail investor attention to firms' idiosyncratic risk in China. We use the Baidu search index as a proxy for attention and test its effect on Chinese firms' idiosyncratic risk from 2011 to 2017. Our empirical results suggest investor attention has a positive impact on firms' idiosyncratic risk. This effect is robust to possible endogeneity issues and alternative channels of effects and is stronger for small firms. Additional analysis finds that the effect of our proxy for attention on firms' idiosyncratic risk is stronger than investor sentiment and traditional attention proxies, including announcements, media news, analyst ratings, and brokerage reports. These findings provide evidence of retail investor attention could increase firms' contemporaneous idiosyncratic risk, and decrease firms' subsequent period risk.

Retail investor attention and firms' idiosyncratic risk: Evidence from China