Does It Pay to Pay Attention?

64 Pages Posted: 1 Oct 2016 Last revised: 25 Apr 2017

Antonio Gargano

University of Melbourne - Department of Finance

Alberto G. Rossi

University of Maryland - Department of Finance

Date Written: April 24, 2017

Abstract

We employ a novel brokerage account dataset to investigate the relation between individual investor attention and performance. Attention is positively related to investment performance, both at the portfolio return level and the individual trades level. We establish causality using an identification strategy that instruments investors’ attention using local weather conditions and provide evidence that the superior performance of high-attention investors arises because they behave as momentum traders that purchase stocks early in their momentum cycle. Finally, we show that paying attention is particularly profitable when trading stocks with high uncertainty, but for which a lot of public information is available.

Keywords: investor attention, brokerage account, momentum, investment performance

JEL Classification: D14, G02, G10, G11

Suggested Citation

Gargano, Antonio and Rossi, Alberto G., Does It Pay to Pay Attention? (April 24, 2017). Finance Down Under 2017 Building on the Best from the Cellars of Finance. Available at SSRN: https://ssrn.com/abstract=2846149 or http://dx.doi.org/10.2139/ssrn.2846149

Antonio Gargano

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Alberto G. Rossi (Contact Author)

University of Maryland - Department of Finance ( email )

Robert H. Smith School of Business
Van Munching Hall
College Park, MD 20742
United States

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