Memory moves markets

I show that memory-induced attention can distort prices in financial markets. I exploit rigid earnings announcement schedules to identify which firms are associated in investors’ memory. Firms with randomly overlapping earnings announcements are associated in memory because many investors experience them in the same context. Months later, when only one of the two firms announces earnings, this context is cued, and triggers the recall of the other, associated firm. On such days, I find that memory-induced attention leads to buying pressure in the associated firm’s stock. The strength of this effect varies as predicted by associative memory theory.