Implications of investors attention to asset pricing and corporate finance A study of Nifty50 stocks using Google search trends

Abstract

Attention is a cognitive resource that has a lasting implication on human decision-making. With newlinethe prevalence of the internet and ubiquitous use of Google1 newline by individuals before decisionmaking of any kind, including investment decisions, gives rise to emerging research avenues. newlineIn the study, we explored the implications of investor s attention on asset pricing and corporate newlinefinance decisions. newlineUtilizing the Google Search Volume Index (GSVI) as a direct metric of investor attention, this newlinestudy aims to investigate investor s attention dynamics spanning from April 2004 to March newline20232 newline. Employing the Mixed Data Sampling (MIDAS) regression technique to analyze data of newlinevarying frequencies, the research endeavours to discern and delineate the wide-ranging newlineattributes of investor attention and its implications to asset pricing and corporate finance newlinedecisions. Asset pricing variables considered are stock returns, stock volume, and stock newlinevolatility. For the corporate finance, the study focused on firm s capital structure and corporate newlinecash holdings. newlineOur findings, based on Nifty 50-listed stocks, provide evidence that investor attention has a newlinesignificant influence on both the asset pricing (stock returns, volume and volatility) and newlinecorporate finance (capital structure and corporate cash holdings) variables. The study period newlineincludes different external shocks to financial markets, such as the Global financial crisis newline(GFC) in 2008 and the COVID-19 pandemic in 2020 as they provide additional insights. The newlineresults of this study would provide insights to academicians, investors, and regulators on the newlinerole of investor attention and its implications on asset pricing and corporate finance decisions. newlineWe explore how retail investor attention serves as a pivotal behavioural force that connects with stock market dynamics and firm-level financial decisions. Investors tend to focus more on stocks that deliver higher returns.