Please read the article titled, "Limited Attention to Detail in Financial Markets," and write a critical review. The review should be 1-2 pages, double-spaced, 12 font. A maximum of two pages will be strictly enforced. The review should start with a very brief description of what the paper accomplishes. The bulk of your review should evaluate the article from a critical perspective: Do you find the article persuasive? What are its weaknesses? Can you think of alternative explanations for the results?

5. Conclusion This paper studies how market participants react to changes in information visibility, and whether their reactions ultimately affect asset prices. We examine these questions by studying the introduction of an important accounting regulation. Regulation FAS 123R required firms to begin deducting option compensation costs in their income statements. This led to a sharp drop in earnings, but it did not reveal new information, as firms had previously disclosed option costs in their financial statement footnotes. Models of limited attention predict that such a change in information visibility could affect how market participants value firms (Hirshleifer and Teoh 2003). We test this prediction by examining how analysts recommendations and asset prices changed when FAS 123R took effect. Our identification strategy uses a staggered DiD design with timeseries and crosssectional variation in FAS 123Rs requirement to expense option grants. The timeseries dimension exploits that compliance dates were staggered quasirandomly over time. Each firm had to begin expensing stock options in the fiscal year starting after June 15, 2005. The crosssectional dimension compares firms based on the expected impact of FAS 123R on their earnings. Earnings should drop most among firms that granted large amounts of options to employees before the regulation was adopted. We first confirm that option expensing had a significant impact on earnings. Highoption firms earnings fell sharply once they started to expense options. The drop in earnings increased the frequency with which highoption firms missed analysts forecasts. This indicates that consensus analyst forecasts were too high for firms that started to comply with the regulation. The missed forecasts had significant effects on analysts beliefs about firm valuations, leading them to downgrade highoption firms stocks. 27

However, analysts who were highly familiar with the firms covered or had more overall experience did not make forecast errors. We complete our analysis by examining how asset prices responded to firms missed forecasts and analysts downward revisions. Highoption firms stock prices fell by 2.3% immediately upon announcing earnings that fell short of analysts forecasts, equal to a $45m decrease in the average market capitalization of these firms. Highoption firms CARs also fell by 2.9% when analysts revised their stocks downward in the first fiscal quarter of option expensing. Our findings are consistent with analysts underestimating option expenses prior to FAS 123R, when accurate valuation required timeconsuming, meticulous inspection of financial statement footnotes. After firms began to expense options, analysts realized that they had previously set earnings targets too high and overvalued firms, leading them to correct their recommendations. Our results suggest that market participants display limited attention when evaluating firm expenditures that are not directly recorded in the income statement. These findings are consistent with Hirshleifer and Teoh (2003), who show that option expensing may have corrected a prior overvaluation of firms. Our paper contains implications for policymakers debating new requirements for company disclosures of key expenditures. The results also indicate that recent technological advancements in the scraping and analysis of data in annual reports can be valuable.