Asymmetric Attention and Stock Returns Academic Article

abstract

• This paper constructs a new measure of attention allocation by local investors relative to nonlocals using aggregate search volume from Google. We first present a conceptual framework in which local investors optimally choose to focus their attention on local stocks when they receive private news, leading to an asymmetric allocation of attention between local and nonlocal investors. Consistent with the main prediction of this framework, we find that firms attracting abnormally high asymmetric attention from local relative to nonlocal investors earn higher returns. A portfolio that goes long in stocks with high asymmetric attention and short in stocks with low asymmetric attention has an alpha of 32 basis points per month. The results are stronger for stocks with a greater degree of information friction. The new measure of asymmetric attention allows one to infer the arrival of unobservable private information by observing investors attention allocation behavior. This paper was accepted by Karl Diether, finance.

authors

• Cziraki, Peter

published proceedings

• MANAGEMENT SCIENCE

author list (cited authors)

• Cziraki, P., Mondria, J., & Wu, T.

citation count

• 40

complete list of authors

• Cziraki, Peter||Mondria, Jordi||Wu, Thomas

publication date

• January 2021

publisher

• Institute for Operations Research and the Management Sciences (INFORMS)  Publisher

published in

• Management science  Journal

keywords

• Asymmetric Information
• Geography
• Limited Attention
• Stock Returns

Digital Object Identifier (DOI)

• 10.1287/mnsc.2019.3460

start page

• 48

end page

• 71

volume

• 67

issue

• 1

URL

• http://dx.doi.org/10.1287/mnsc.2019.3460