Not all that glitters is gold: The effect of attention and blogs on investors' investing behaviors

This article investigates the relationship between a firm's visibility in blogspaces, termed blog exposure, and the cross-sectional stock returns. We show that blog exposure is fundamentally different from the traditional media coverage, and securities with low blog exposure earn higher returns than stocks with high blog exposure. We further illustrate that such an effect is more prominent for stocks with low institutional ownership. Contrary to traditional media coverage, the return premium associated with blog exposure cannot be explained by either the illiquidity hypothesis or the investor recognition hypothesis based on the rational-agent framework. Instead, our results suggest that blog effect can be attributed to the limited attention theory and cannot be arbitraged due to investors' selfattribution and short-sale constraints. Our research points out the importance of blogs in information dissemination, especially for the stocks with limited attention.