Retail Attention, Institutional Attention

Using direct investor attention proxies, we show that constrained investors follow a pecking order in allocating attention. While retail investors are attentive to both macroeconomic news and individual firms’ earnings announcements, macroeconomic news crowds out attention to earnings by 28.8%. Institutional attention is less constrained and exhibits no crowding-out effect. The lack of retail attention lowers the earnings announcement return responses by 15.8%, even when institutions are attentive. For high-retail-ownership stocks, macro news dampens earnings responses by 9.9%, especially when VIX is high. The findings suggest that the relative importance of retail vis-a-vis institutional investors affects equilibrium prices.