Investor Attention Strategy

Journal of Behavioral Finance, Forthcoming

19 Pages Posted: 7 Jun 2016

Date Written: June 5, 2016

Abstract

This paper documents the motivation, the construction, and the profitability of an investment strategy based on investor attention in the options market. Using the option volume after a one-week dormant period as a proxy for investor attention, we show that heightened investor attention after the dormant period has rich investment implications. A portfolio constructed on the basis of volume spike events immediately after the dormant period generates an abnormal return of 68 basis points on a monthly basis (8.16% on an annualized basis). This abnormal return is robust to risk adjustment using standard asset pricing models. Our findings constitute strong evidence that it is profitable for outside investors to mimic attentive investors in the options market and reap economically and statistically significant profits.

Keywords: Investor Attention, Volume Spikes, Attention Portfolios, Abnormal Returns

JEL Classification: G1

Suggested Citation

Wang, Xuewu Wesley, Investor Attention Strategy (June 5, 2016). Journal of Behavioral Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2790611

Xuewu Wesley Wang (Contact Author)

Quinnipiac University ( email )

275 Mt Carmel Ave
Hamden, CT 06518
United States
6179353977 (Phone)

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