Abstract: We show that a substantial part of information acquisition and trading in stock markets is driven directly by salient returns, above and beyond the effects of underlying causes of returns. To establish causality, we first analyze overnight earnings announcements. Larger surprises lead to more information acquisition only after the market opens, consistent with salient returns as a cause. Second, we exploit Wall Street Journal rankings to show that prominently placed salient returns drive information acquisition and trading. Finally, we document that stocks experiencing salient returns are particularly mispriced, in line with return-induced uninformed trading as a major moderator of anomalies.

JEL Classification: G12, G14.

Keywords: salience, information placement, returns, information acquisition, trading activity, mispricing

The public research seminars of the Department of Economics and Finance (DEF) at Tallinn University of Technology  usually take place on the second and fourth Wednesdays of the month in both onsite and online format, unless announced otherwise. The presentation will last approximately 45 minutes followed by 15 minutes of discussion. The seminars are held in English. Copies of the paper are usually made available at the seminar. The DEF seminar series is organised in collaboration with the project ”Individual Behaviour and Economic  Performance: Methodological  Challenges and Institutional Context” (IBEP), which has received funding from the European Union’s Horizon 2020 Research and Innovation programme under Grant Agreement No 952574. Questions about the seminar can be sent to the IBEP seminar coordinator Rachatar Nilavongse, rachatar.nilavongse@taltech.ee.