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Investor attention and short-term return reversals

Author

Listed:
  • Heyman, Dries
  • Lescrauwaet, Michiel
  • Stieperaere, Hannes

Abstract

The Google Search Volume Index is proposed as a novel and improved proxy for overreaction as selling winner stocks after they enjoyed a substantial surge in search volume is found to be profitable. It increases the gains of a standard reversal strategy, net of transaction costs, from 17.5 basis points to 34.2 basis points on a weekly basis, corresponding to a 9.1% increase on an annual basis. Furthermore, we report significant alphas in Fama–French-type regressions. The results suggest that most of the reversal profits are made in volatile times, which are typically periods when overreaction is most likely.

Suggested Citation

  • Heyman, Dries & Lescrauwaet, Michiel & Stieperaere, Hannes, 2019. "Investor attention and short-term return reversals," Finance Research Letters, Elsevier, vol. 29(C), pages 1-6.
    • Handle: RePEc:eee:finlet:v:29:y:2019:i:c:p:1-6
    DOI: 10.1016/j.frl.2019.03.003
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    References listed on IDEAS

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    Citations

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    Cited by:

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    2. Smales, L.A., 2021. "Investor attention and global market returns during the COVID-19 crisis," International Review of Financial Analysis, Elsevier, vol. 73(C).
    3. Chundakkadan, Radeef & Nedumparambil, Elizabeth, 2022. "In search of COVID-19 and stock market behavior," Global Finance Journal, Elsevier, vol. 54(C).
    4. Desagre, Christophe & D’Hondt, Catherine, 2021. "Googlization and retail trading activity," Journal of Behavioral and Experimental Finance, Elsevier, vol. 29(C).
    5. Nguyen, Anh Duy, 2020. "Alternative reversal variable," Finance Research Letters, Elsevier, vol. 33(C).
    6. Christophe Desagre & Catherine D'Hondt, 2020. "Googlization and retail investors' trading activity," LIDAM Discussion Papers LFIN 2020004, Université catholique de Louvain, Louvain Finance (LFIN).
    7. Zhou, Wei & Gu, Ruitao & Lu, Shuai, 2020. "Penetrating the real performance of SSE STAR enterprises: A double-market investigation," Finance Research Letters, Elsevier, vol. 37(C).
    8. Anh Duy Nguyen, 2020. "Alternative reversal variable," Post-Print hal-02388743, HAL.
    9. Wu, Chunying & Xiong, Xiong & Gao, Ya & Zhang, Jin, 2022. "Does social media distort price discovery? Evidence from rumor clarifications," Research in International Business and Finance, Elsevier, vol. 62(C).
    10. Wang, Jun & Song, Xiuna, 2022. "The effect of limited attention and risk attitude on left-tail reversal: Empirical results from a-share data in China," Finance Research Letters, Elsevier, vol. 46(PA).
    11. Emre Cevik & Buket Kirci Altinkeski & Emrah Ismail Cevik & Sel Dibooglu, 2022. "Investor sentiments and stock markets during the COVID-19 pandemic," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-34, December.
    12. Chen, Rongda & Qian, Qian & Jin, Chenglu & Xu, Min & Song, Qiping, 2020. "Investor attention on internet financial markets," Finance Research Letters, Elsevier, vol. 36(C).
    13. Borgards, Oliver & Czudaj, Robert L. & Hoang, Thi Hong Van, 2021. "Price overreactions in the commodity futures market: An intraday analysis of the Covid-19 pandemic impact," Resources Policy, Elsevier, vol. 71(C).
    14. Anh Duy Nguyen, 2019. "Alternative reversal variable," Working Papers hal-02388743, HAL.

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    More about this item

    Keywords

    Price reversals; Investor attention; Investor overreaction; Google trends;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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