| In theory,more information leads to better investment decisions.But the problem is that attention is a scarce cognitive resource.When a large amount of information and limited cognitive resources exist at the same time,information selection will inevitably occur,which leads to limited attention.Therefore,valuable information in the market may not be reflected in asset prices in timely,accurately and completely.Based on limited attention and market inefficiency,attention may alter the predictability of index performance due to the nature of information revealed by past stock index performance.This paper include three stock market indexes:SSE 50 index,CSI 300 Index and CSI 500 Small cap Index,and the proxy of investor limited attention is a Baidu Index.The data covers a weekly period from January 2015 until September 2015.The study the relationship between limited attention and the performance of stock indexes and their predictability.The main conclusion follows:Firstlyt,attention can significantly short-term affect the performance of stock index.Secondly,a shock to stock index returns leads to a long-term change investors’ attention.Thirdly,Based on limited attention,the change of attention will affect the correlation of stock index returns,which reflects from one perspective that attention can improve market efficiency.For SSE 50 index and CSI 500 index,the increase of attention reduces the correlation of index returns,that is,the predictability of stock indexes decreases.Furthermore,the correlation between historical index volatility and current index volatility will also decrease if more attention is assigned to stock indexes.In general,by allocating more attention to stock indexes,more information leads to more efficient markets. |
