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Identifying the Effects of Macroeconomic Attention Through Foreign Investor Distraction

Published online by Cambridge University Press:  09 December 2022

Paul Marmora Open the ORCID record for Paul Marmora [Opens in a new window]
Paul Marmora*
Affiliation:
Saint Anselm College Department of Economics and Business
*
[email protected]
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Abstract

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While the causal impact of limited attention to macroeconomic news is difficult to detect, this article proposes one solution: exploiting when foreign investors are “distracted” by risk factors in their home markets. I demonstrate that financial activity in the average foreign investor’s home market decreases foreign attention paid to 21 emerging economies, measured using Google search volume for economy-specific financial terms that emanate from outside each economy’s border. Exploiting this effect using an instrumental variables approach, I find that an exogenous increase in foreign attention preceding a scheduled monetary policy rate announcement raises preannouncement stock returns and announcement day turnover.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 8 , December 2023 , pp. 3644 - 3671
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

I am extremely grateful to Jennifer Conrad (the editor) and Alexander Kurov (the referee) for numerous valuable suggestions. All remaining errors are my own.

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