“Asymmetric Attention and Stock Returns” by Jordi Mondria
University of North Carolina at Chapel Hill
UC Santa Cruz
According to theories of attention, one can infer the arrival of unobservable private information by observing investors’ behavior. Specifically, theory suggests that the arrival of private news about local stocks increases the asymmetry in attention allocation between local and nonlocal investors. As a result, local stocks experience a buying pressure from local investors, which will translate into temporarily higher future returns. We find evidence consistent with such predictions by proposing a direct measure of asymmetry of the attention allocated by locals and nonlocals towards S&P 500 stocks based on aggregate search volume in Google. We find that (i) attention allocation is indeed biased towards local stocks and that (ii) firms receiving an increase in asymmetric attention earn higher returns.