Local Information Advantage, Investor Attention, and Stock Returns
56 Pages Posted: 27 Sep 2014 Last revised: 4 Jan 2016
Date Written: December 26, 2015
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: Suggested Citation