Asymmetric Attention and Stock Returns
40 Pages Posted: 1 Mar 2011 Last revised: 2 Apr 2017
Date Written: March 1, 2017
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
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