Information Fluctuations,Rational Inattention And Investors’ Attention Allocation

The agent spends attention when acquiring information and processing information.Attention refers to the scarce resource that cannot be regenerated in a short term.In the digital age of explosive growth of information,limited attention needs to be allocated reasonably and effectively.Investors in the capital market are typical decision-makers of massive information.And it also put forwards higher requirements for investors’ attention allocation methods.Under the framework of rational inattention,this paper studies the investors’ attention allocation in the face of information fluctuations from both theoretical and empirical perspectives.First of all,by establishing the relationship between attention and information accuracy,this paper constructs a two-stage attention allocation model of rational inattention.In the first stage,it is suggested to consider the consumption of investor’s information collection and add penalty and constraints to the investor’s wealth function.In the second stage,it is necessary to consider the investor’s allocation of attention to information processing,and establish the investor’s mean variance utility function.According to the actual process of information processing,allocation and decision-making,and gaining benefits,a theoretical model is built in three steps.First,the model divides public information into one macro-information and multiple micro-information.By allocating attention,investors extract private signals from public information,and obtain the posterior distribution of private signals in the Bayesian framework.Second,combining the posterior distribution of private signals and the wealth function with penalty,the mean variance utility function of the decision makers can be obtained.Third,the model target utility function can be obtained through Taylor approximation expansion.In this paper,through parameter correction,mathematical derivation and numerical simulation,theoretical results will be obtained.According to the results,to improve the level of investment utility,rational inattention investors’ attention allocation should be proportional to the fluctuation of information.Specifically,there are two conclusions.First,when investors are faced with both macro and micro information fluctuations,they can obtain higher returns by assigning their attention to the information with greater fluctuations.Second,in the face of specific micro information,investors can obtain higher returns by allocating their attention to groups with greater information fluctuation.In response to the first conclusion,this article studies the concerns of investors on macro-information and micro-information in the context of different monetary policies from two aspects of attention allocation and income.Based on the empirical results,it is found that in China’s capital market,there is an asymmetric change between macro-information fluctuations and micro-information fluctuations under different monetary policy backgrounds.The macro-information fluctuations under loose monetary policies are significantly higher than those during monetary tightening.Although micro-information fluctuations are not as significant as macro-information fluctuations under different monetary policies,there are significant differences in the ratio of macro-information fluctuations to micro-information fluctuations under different monetary policies.Second,based on the historical stock holding behavior of the fund,it shows that when the government implements different monetary policies,the allocation of attention of fund managers will be readjusted.That is,in the context of loose monetary policy,fund managers who pay attention to macro information fluctuations have significant timing ability;and in the context of tightening monetary policy,fund managers who pay attention to micro-information fluctuations have significant security selection abilities.The empirical results are consistent with the theoretical results.Finally,in response to the second conclusion,this paper selects two representative micro-factors from the perspective of risk and return,and discusses the attention allocation under different information fluctuations of micro-factors.Among them,the information fluctuation of risk factors will decrease with the increase of attention,that is,the increase of attention can effectively reduce the uncertainty of risk.On the contrary,the information fluctuation of income factors increases with the increase of attention,that is,the increase of attention will cause the uncertainty of the factors.In terms of risk information volatility,this paper constructs a left-tail risk factor that can reflect the particularity of China’s A-share price limits.By testing the difference in returns of the extreme groups,the following conclusions are obtained.First,there is a significant left-tail risk reversal effect in China’s stock market,that is,there is a significant phenomenon of "high risk and high return" in China’s A-share market.Second,by paying attention to the high information volatility of the left-tail risk reversal factor,the profitability level can be significantly improved.In terms of income information,this article selects common stock price reversal factors.According to empirical studies,there is a significant price reversal effect in China’s A-share market,that is,stocks with lower historical returns will have better future returns,while stocks with better historical returns will be less likely to realize the returns in the future.And as the market pays more attention to sub-investments of high information volatility,the earning power of its price reversal factors also increases.The results show that regardless of the correlation between the fluctuation of the variable itself and the attention,higher returns can be obtained by paying attention to the groups with higher information fluctuations in the micro-information,which is consistent with the conclusion of the theoretical model of rational inattention.In summary,this article discusses the relationship between information fluctuations and investor’s attention allocation under the condition of maximizing investment utility by refining the attention allocation process of rational inattention investors,provides theoretical support for the government to formulate capital market regulatory policies,and also provides relevant suggestions for investors’ decision-making from the perspective of attention allocation.