In Search of Attention

45 Pages Posted: 22 Mar 2009 Last revised: 30 Oct 2014

Zhi Da

University of Notre Dame - Mendoza College of Business

Joseph Engelberg

University of California, San Diego (UCSD) - Rady School of Management

Pengjie Gao

University of Notre Dame - Mendoza College of Business

Date Written: June 4, 2009

Abstract

Turnover, extreme returns, news and advertising expense are indirect proxies of investor attention. In contrast, we propose a direct measure of investor demand for attention -- active attention -- using search frequency in Google (SVI). In a sample of Russell 3000 stocks from 2004 to 2008, we find SVI to be correlated with but different from existing proxies of investor attention. In addition, SVI captures investor attention on a more timely basis. SVI allows us to shed new light on how retail investor attention affects the returns to IPO stocks and price momentum strategies. Using retail order execution in SEC Rule 11Ac1-5 reports, we establish a strong and direct link between SVI changes and trading by less sophisticated individual investors. Increased retail attention as measured by SVI during the IPO contributes to the large first-day return and long-run underperformance of IPO stocks. We also document stronger price momentum among stocks with higher levels of SVI, consistent with the explanation of momentum proposed by Daniel, Hirshleifer and Subrahmanyam (1998).

Keywords: attention, internet search, individual investor, IPO, price momentum

JEL Classification: G10

Suggested Citation

Da, Zhi and Engelberg, Joseph and Gao, Pengjie, In Search of Attention (June 4, 2009). AFA 2010 Atlanta Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1364209 or http://dx.doi.org/10.2139/ssrn.1364209

Zhi Da (Contact Author)

University of Notre Dame - Mendoza College of Business ( email )

Notre Dame, IN 46556-5646
United States

Joseph Engelberg

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

Pengjie Gao

University of Notre Dame - Mendoza College of Business ( email )

246 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
(574) 631-8048 (Phone)

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