Investor Attention, Visual Price Pattern, and Momentum Investing

74 Pages Posted: 13 Jul 2013 Last revised: 12 Aug 2014

See all articles by Li-Wen Chen

Li-Wen Chen

National Chung Cheng University

Hsin-Yi Yu

National University of Kaohsiung

Date Written: August 12, 2014


As a visual mode of analysis is more intuitive to human cognition than algebraic numbers, we propose that the visual pattern of historical prices is a salient signal that attracts attention; thereby inducing overreaction. We construct a long-short portfolio, including the stocks that are more likely to grab attention, and create an illusion through their discernible visual patterns of historical prices. The newly-developed portfolio commands an annual risk-adjusted return of 23.1% and dominates momentum investing. The outperformance holds under various specifications and asset pricing models. We provide support that momentum is induced by visually psychological biases.

Keywords: Momentum; Technical Analysis; Limited Attention; Visual; Illusion

JEL Classification: G11, G12, G14

Suggested Citation

Chen, Li-Wen and Yu, Hsin-Yi, Investor Attention, Visual Price Pattern, and Momentum Investing (August 12, 2014). 27th Australasian Finance and Banking Conference 2014 Paper, Available at SSRN: or

Li-Wen Chen

National Chung Cheng University ( email )

Min-Shiung, Chia-Yi, 621

Hsin-Yi Yu (Contact Author)

National University of Kaohsiung ( email )

Kaohsiung, 803

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