Asymmetric Attention and Stock Returns

55 Pages Posted: 1 Mar 2011 Last revised: 22 Aug 2018

See all articles by Peter Cziraki

Peter Cziraki

University of Toronto - Department of Economics; Tilburg Law and Economics Center (TILEC)

Jordi Mondria

University of Toronto - Department of Economics

Thomas Wu

University of California, Santa Cruz - Department of Economics

Date Written: August 20, 2018

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 frictions. The new measure of asymmetric attention allows one to infer the arrival of unobservable private information by observing investors' attention allocation behavior.

Keywords: Limited attention, Geography, Asymmetric Information, Stock Returns

JEL Classification: G12, G14, D82

Suggested Citation

Cziraki, Peter and Mondria, Jordi and Wu, Thomas, Asymmetric Attention and Stock Returns (August 20, 2018). Available at SSRN: https://ssrn.com/abstract=1772821 or http://dx.doi.org/10.2139/ssrn.1772821

Peter Cziraki

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S3G7
Canada
+1 416 946 3298 (Phone)

HOME PAGE: http://www.economics.utoronto.ca/petercziraki

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Jordi Mondria (Contact Author)

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada
1-416-978-1494 (Phone)

HOME PAGE: http://individual.utoronto.ca/jmondria/

Thomas Wu

University of California, Santa Cruz - Department of Economics ( email )

Santa Cruz, CA 95064
United States
831-459-4453 (Phone)
931-459-5077 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
845
rank
26,284
Abstract Views
6,363
PlumX Metrics