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Asymmetric Attention and Stock Returns

  • Thomas Wu

    (UC Santa Cruz)

  • Jordi Mondria

    (University of Toronto)

We study the asset pricing implications of attention allocation theories. These theories allow us to predict the arrival of private information by observing investors' behavior. Specifically, attention allocation theories suggest that the arrival of private news to local investors lead to an increase in asymmetric attention to stocks between local and nonlocal investors. We construct a measure of asymmetric attention based on aggregate search volume in Google. We find that firms receiving an increase in asymmetric attention earn higher returns, even after controlling for size, book-to-market, momentum and liquidity factors. We find this effect to be stronger among illiquid stocks and stocks headquartered in remote locations. Our results provide direct support for attention allocation theories.

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File URL: https://www.economicdynamics.org/meetpapers/2011/paper_134.pdf
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Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 134.

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Date of creation: 2011
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Handle: RePEc:red:sed011:134
Contact details of provider: Postal:
Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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  1. Pástor, Luboš & Stambaugh, Robert F., 2002. "Liquidity Risk and Expected Stock Returns," CEPR Discussion Papers 3494, C.E.P.R. Discussion Papers.
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  8. Jordi Mondria & Thomas Wu & Yi Zhang, 2008. "The Determinants of International Investment and Attention Allocation: Using Internet Search Query Data," Working Papers tecipa-326, University of Toronto, Department of Economics.
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  16. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
  17. Lily Fang & Joel Peress, 2009. "Media Coverage and the Cross-section of Stock Returns," Journal of Finance, American Finance Association, vol. 64(5), pages 2023-2052, October.
  18. Christopher J. Malloy, 2005. "The Geography of Equity Analysis," Journal of Finance, American Finance Association, vol. 60(2), pages 719-755, 04.
  19. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
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