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Asymmetric Attention and Stock Returns

Author

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  • Thomas Wu

    (UC Santa Cruz)

  • Jordi Mondria

    (University of Toronto)

Abstract

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.

Suggested Citation

  • Thomas Wu & Jordi Mondria, 2011. "Asymmetric Attention and Stock Returns," 2011 Meeting Papers 134, Society for Economic Dynamics.
  • Handle: RePEc:red:sed011:134
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    File URL: https://economicdynamics.org/meetpapers/2011/paper_134.pdf
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    References listed on IDEAS

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    Cited by:

    1. Jordi Mondria & Thomas Wu, 2012. "Familiarity and Surprises in International Financial Markets: Bad news travels like wildfire, good news travels slow," 2012 Meeting Papers 50, Society for Economic Dynamics.

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