In Search of Alpha - Trading on Limited Investor Attention

28 Pages Posted: 4 Nov 2015 Last revised: 19 Nov 2015

See all articles by Konstantin Storms

Konstantin Storms

WHU - Otto Beisheim School of Management

Julia Kapraun

Goethe University Frankfurt - House of Finance

Markus Rudolf

WHU Otto Beisheim Graduate School of Management

Date Written: November 3, 2015

Abstract

In this study we develop a trading strategy that exploits limited investor attention. Trading signals for US S&P 500 stocks are derived from Google Search Volume data, taking a long position if investor attention for the corresponding security was abnormally low in the past week. Our strategy generates 19% average annual return and thereby outperforms a simple market buy-and-hold strategy. After controlling for the well-known risk factors, a significant alpha (abnormal return) of 10% p.a. remains. Returns are sufficiently large to cover transaction costs.

Keywords: investor attention, search engine volume, trading strategy

JEL Classification: G02, G12, G14

Suggested Citation

Storms, Konstantin and Kapraun, Julia and Rudolf, Markus, In Search of Alpha - Trading on Limited Investor Attention (November 3, 2015). Available at SSRN: https://ssrn.com/abstract=2676583 or http://dx.doi.org/10.2139/ssrn.2676583

Konstantin Storms

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

HOME PAGE: http://www.whu.edu

Julia Kapraun (Contact Author)

Goethe University Frankfurt - House of Finance ( email )

Theodor-W.-Adorno Platz 3
Frankfurt am Main, 60323
Germany

Markus Rudolf

WHU Otto Beisheim Graduate School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany
+49-(0)261-6509-420 (Phone)

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