Losing Sight of the Trees for the Forest? Attention Allocation and Anomalies

Quantitative Finance, Forthcoming

36 Pages Posted: 18 Mar 2012 Last revised: 20 Jun 2016

See all articles by Heiko Jacobs

Heiko Jacobs

University of Duisburg-Essen, Campus Essen

Martin Weber

University of Mannheim - Department of Banking and Finance

Date Written: March 18, 2016

Abstract

This paper tests asset pricing implications of the investor attention shift hypothesis proposed in theoretical work.We create a novel proxy for the dynamics of inattention towards firm-specific information and explore its impact on prominent return anomalies. As hypothesized and with all else equal, the proxy positively predicts the post-earnings-announcement drift as well as the profitability of pairs trading, and negatively predicts the success of momentum strategies. Taken together, our findings highlight the importance of time-varying investor attention allocation for the price discovery process.

Keywords: Behavioral finance, return predictability, limited attention, attention allocation, anomalies

JEL Classification: G12, G14

Suggested Citation

Jacobs, Heiko and Weber, Martin, Losing Sight of the Trees for the Forest? Attention Allocation and Anomalies (March 18, 2016). Quantitative Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2023539 or http://dx.doi.org/10.2139/ssrn.2023539

Heiko Jacobs (Contact Author)

University of Duisburg-Essen, Campus Essen ( email )

Universitätsstr. 9
Essen, 45141
Germany
+49-(0)621-181-3453 (Phone)
+49-(0)621-181-1534 (Fax)

HOME PAGE: http://sites.google.com/site/heikojacobsfinance/

Martin Weber

University of Mannheim - Department of Banking and Finance ( email )

D-68131 Mannheim
Germany
+49 621 181 1532 (Phone)
+49 621 181 1534 (Fax)

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