Attention and biases: Evidence from tax-inattentive investors

Abstract

We provide evidence of investor inattention to a very simple and well-known tax-exemption opportunity in the Brazilian stock market. Attentive and inattentive investors are similar along the dimensions of portfolio size and number of trades, but inattentive investors exhibit stronger behavioral biases and worse trading performance. The results hold even among high-activity investors who trade large volumes. The results are consistent with inattention being a common cause of behavioral biases.