Institutional investors are supposed to process information efficiently, read everything that matters, and adjust portfolios rationally. But in practice, attention is scarce. Funds must choose what to read, when to read it, and whether to focus on macro conditions or individual firms. This paper opens that black box. Using direct data on what institutional investors actually read online, it shows that attention is a real economic resource. Funds that reallocate attention toward macro news when volatility rises perform better. Funds also pay more attention to the stocks they own, and that attention helps them make more valuable position and trading decisions.
Institutional Investor Attention
- Alan Kwan, Yukun Liu, Ben Matthies
- The Journal of Finance, 2026
- A version of this paper can be found here
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Key Academic Insights
Funds shift attention toward macro news when uncertainty rises
The paper shows that institutional investors reallocate attention toward macroeconomic and aggregate market news when aggregate volatility is high. This is consistent with limited-attention theories, which predict that macro information becomes more valuable during turbulent periods.
Funds that reallocate attention better earn higher returns
A fund’s ability to shift attention toward macro news when volatility rises predicts better future performance. Funds with higher macro-attention sensitivity outperform by about 0.48% per quarter, or roughly 1.9% annualized, and that outperformance is strongest when aggregate volatility is high.
Attention and portfolio holdings are closely linked
Funds pay much more attention to stocks they already hold than to stocks they do not hold. On average, they read about held stocks around five times more than non-held stocks, and within portfolios, larger positions receive more attention. This supports the idea that investors concentrate attention where they expect it to matter most.
Firm-specific attention adds value to positions
Attention to a stock predicts greater position-level value-add. Stocks that receive more attention contribute more to future portfolio performance, especially when the fund already holds a large position or is making a meaningful trade.
Attention improves trading decisions, especially buys
Fund attention to a stock is positively associated with trade-based value-add. In other words, attentive trading is more profitable. This effect is especially strong for buys rather than sells, consistent with the view that buying decisions require more information production than selling decision.
Attention from sophisticated investors predicts future returns
At the stock level, attention by buying funds predicts future returns, especially when the attention comes from hedge funds. Stocks that attract more attentive buying subsequently outperform, suggesting that investor attention helps move information into prices, but not immediately.
Practical Applications for Investment Advisors
Treat attention as an investment resource
Investment skill is not just about security selection. It is also about where to allocate limited research capacity. The paper suggests that better managers direct attention toward the most decision-relevant information at the right time.
Watch process, not just outcomes
Managers who can shift focus toward macro conditions during high-volatility periods may have a more adaptive investment process. That flexibility appears tied to better performance.
Use conviction and attention together
The paper shows that attention is most valuable when paired with meaningful position size or meaningful trades. In practice, that suggests investors should focus deepest research effort where conviction and capital commitment are highest.
Separate useful information from noise
Attention to business and financial news creates more value than attention to retail-oriented or general news. That reinforces the importance of filtering signal from noise in portfolio management.
How to Explain This to Clients
“Successful investing is not just about having access to information. It is about knowing where to focus limited attention. This research shows that better institutional investors shift their focus toward big-picture macro risks when markets become more volatile, and toward the individual stocks that matter most in their portfolios. That attention appears to improve both portfolio construction and trading decisions
The Most Important Chart from the Paper
The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged and do not reflect management or trading fees, and one cannot invest directly in an index.
Abstract
Using data on Internet news reading, we measure fund-level attention to both aggregate and firm-specific news and relate it to fund portfolio allocation decisions. In the time series, we find that funds shift attention toward macroeconomic news during periods of high aggregate volatility. Those funds that exhibit stronger attention-reallocation patterns earn higher future returns. In the cross-section of fund portfolios, fund attention is positively related to stock holdings. Furthermore, fund attention to a stock increases the value-add of that position to the fund’s performance. This relationship is stronger using fund attention to more value-relevant news articles.
About the Author: Elisabetta Basilico, PhD, CFA
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Important Disclosures
For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Third party information may become outdated or otherwise superseded without notice. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency has approved, determined the accuracy, or confirmed the adequacy of this article.
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Alpha Architect, its affiliates or its employees. Our full disclosures are available here. Definitions of common statistics used in our analysis are available here (towards the bottom).
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Facts Only
Executive Summary
Full Take
The study establishes a powerful connection between cognitive allocation (attention) and financial outcomes, moving the concept of information processing from a passive input to an active investment strategy. The central finding that funds shift attention to macro news during volatility reinforces limited-attention theories, suggesting that the value of information is context-dependent, becoming more salient during turbulent periods. The mechanism is not just reading more, but effectively filtering signal from noise and prioritizing information based on risk.
A critical point for skepticism is the implication that attention itself is a fungible, measurable resource that can be optimally allocated. This invites scrutiny into what constitutes "relevant" attention and how that relevance is measured. The link between attention and trading decisions—specifically the focus on buys—suggests that effective investing involves not just gathering data, but also making timely, information-driven decisions. The finding that attention to held stocks is disproportionately high suggests a bias toward existing positions, which must be considered a constraint on true portfolio diversification.
The observed outperformance is strongest during high volatility, suggesting that attention acts as an adaptive mechanism, allowing investors to respond strategically to shifting market regimes. The complexity lies in operationalizing the "attention" metric itself; the predictive power hinges on whether the attention is truly reflective of sophisticated analytical work rather than mere consumption of news. Future research must explore whether attention can be disentangled into different modalities (e.g., quantitative vs. qualitative reading) to better understand the source of predictive advantage.
Sentinel — Human
This text presents well-structured academic finance research. While the structure is highly optimized, the focus on specific, verifiable quantitative results suggests a human-driven analytical process rather than pure synthetic generation.