Asymmetric Attention and Stock Returns

40 Pages Posted: 1 Mar 2011 Last revised: 2 Apr 2017

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: March 1, 2017

Abstract

This paper constructs a new measure of attention allocation by locals investors relative to nonlocals towards S&P 500 stocks using aggregate search volume in Google. 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 no asymmetric attention has an alpha of 38 basis points per month. These results are consistent with the gradual diffusion of local information hypothesis. 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 (March 1, 2017). Available at SSRN: https://ssrn.com/abstract=1772821 or http://dx.doi.org/10.2139/ssrn.1772821

Peter Cziraki

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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

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)

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