New research suggests that what investors choose to focus on each day can actually predict how the stock market will perform in the near future.
The idea is simple: when a stock catches people’s attention, they are more likely to trade it, and those trades move prices.
But the way different types of investors pay attention turns out to matter a lot—and can even point to whether the market will rise or fall in the coming week.
A study from the University of Notre Dame found that attention from everyday investors, known as retail investors, predicts lower market returns in the short term.
Meanwhile, attention from professional investors, such as mutual funds and hedge funds, predicts higher returns.
The research highlights how “buzz” around individual stocks can ripple outward to influence the entire stock market.
The research team, led by finance professor Zhi Da, published the study in Management Science. To measure attention, the team used two major data sources.
Google’s daily search volume index helped them capture what retail investors were searching for online.
Bloomberg’s “Daily Maximum Readership” score revealed how often institutional investors were reading news about particular stocks.
Instead of studying individual stocks one by one, the researchers averaged these attention measures across the entire market to create two indexes: Aggregate Retail Attention (ARA) and Aggregate Institutional Attention (AIA).
The results showed two strikingly different patterns. When retail investors suddenly begin searching heavily for many individual stocks, market returns in the following week tend to fall.
This suggests that retail investors may chase trends too late. When a stock becomes popular online, its price may already be inflated. Once the excitement fades, prices tend to drop, leading to lower returns.
By contrast, when institutional investors start paying more attention to many individual stocks, market returns over the next week tend to rise. Professional investors often dig into specific stocks when they sense that important news or uncertainty is coming.
Their increased attention appears to reflect more informed research rather than excitement or hype. As a result, higher institutional attention seems to act as an early warning that better returns are ahead, especially around times when new information is about to be released.
The study also found that looking only at broad market-level attention, such as search trends for “Dow” or “S&P 500,” does not predict returns well.
The researchers argue that the market is made up of many individual companies, so a bottom-up approach—combining attention data from individual stocks—provides a clearer picture of how investors collectively influence market movements.
Da says understanding what drives market ups and downs is useful for both researchers and investors.
If attention can reliably signal future returns, it could help people make smarter investment decisions and better understand how the market behaves behind the scenes.
