Alfred Qi FAN 

[Abstract] We document significant outperformance of stocks whose industry peers currently experience salient (attention-grabbing) gains, especially those with strong social ties. The long-short strategy based on this effect can earn a risk-adjusted return of 12.5% (t = 5.58) per year. The pricing results can be differentiated from well-known cross-stock momentum and can’t be attributed to risk-based explanations or short-term reversals. The effect is more pronounced when focal firms are more centered on social networks, receive less attention, or are faced with greater limits of arbitrage. We argue that these findings align with categorical thinking, where the salience of peer firm performance distracts investor attention from the focal firm, leading to investor underreaction.

[Abstract] In most stock markets, average overnight (close-to-open) returns are high while intraday (open-to-close) returns are low, even negative. We show that retail trading proportion (RTP) is a major explanatory variable for this "overnight-intraday return gap" by using data from Korea where accurate and exhaustive retail trade flows are available. To establish a causal relationship between the return gap and RTP, we use an instrumental variables approach that exploits retail investors' tendency to more actively trade stocks with low per-share prices. We attribute this relationship to the recurrent retail ebb and flow stemming from the retail investors' demand for daytime stock market exposure.