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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 Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Web page: http://www.EconomicDynamics.org/society.htm
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