Recommendation System and Retail Trading

"Attention is a scarce cognitive resource" − Daniel Kahneman. Literature on attention and its asset pricing implications suggests that people pay attention to stocks that appear in the media and people tend to buy attention-grabbing stocks. Stock recommendations from the TV show Mad Money and Wall $treet Week have proven to catch people’s attention and create price pressure on the stocks recommended, triggering a positive overnight excess return followed by price reversal in 2-5 days as was found in Beltz and Jennings (1997) and Engelberg, Sasseville, and Williams (2012). This is the so-called "price pressure hypothesis." Barber and Odean (2008) shows that since investors face a formidable search problem in buying stocks but not in selling stocks, people buy stocks that are recommended in the media while there isn’t a huge media effect on negative stock recommendations.