In Search of Alpha - Trading on Limited Investor Attention
28 Pages Posted: 4 Nov 2015 Last revised: 19 Nov 2015
Date Written: November 3, 2015
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: Suggested Citation