Local Information Advantage, Investor Attention, and Stock Returns

56 Pages Posted: 27 Sep 2014 Last revised: 4 Jan 2016

See all articles by Yuqin Huang

Yuqin Huang

Central University of Finance and Economics (CUFE)

Tong Li

Peking University HSBC Business School

Date Written: December 26, 2015

Abstract

We construct a measure of abnormal relative attention (ARA), reflecting unusual changes in attention paid to a stock by local relative to non-local investors, to measure local information advantages. An increase in this measure predicts higher returns in the short term. This predictive power is more prominent for local-name stocks and is robust to alternative implementations. Furthermore, long-short portfolios based on levels of ARA generate significant alphas in various risk-adjustment models. And double-sorted analysis suggests that ARA imposes a much stronger influence on firms with worse information environments.

Keywords: local information advantage, investor attention, stock message board, stock returns

JEL Classification: D82; G12

Suggested Citation

Huang, Yuqin and Li, Tong, Local Information Advantage, Investor Attention, and Stock Returns (December 26, 2015). Available at SSRN: https://ssrn.com/abstract=2501937 or http://dx.doi.org/10.2139/ssrn.2501937

Yuqin Huang (Contact Author)

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Tong Li

Peking University HSBC Business School ( email )

University Town
Nanshan District
Shenzhen, Guang Dong 518055
China

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