Losing sight of the trees for the forest? Attention allocation and anomalies. Issue 11 (1st November 2016)

• Record Type: Journal Article
• Authors: Jacobs, Heiko; Weber, Martin
• Is Part Of: Quantitative finance. Volume 16:Issue 11(2016)
• Page Start: 1679
• Page End: 1693
• Publication Date: 2016-11-01
• Subjects: Behavioural finance -- Return predictability -- Limited attention -- Attention allocation -- Anomalies; G12 -- G14; Finance -- Periodicals; Business mathematics -- Periodicals; Finance -- Mathematical models -- Periodicals; Investments -- Mathematics -- Periodicals; Economics -- Periodicals; Finances -- Modèles mathématiques -- Périodiques; 332.015118
• DOI: 10.1080/14697688.2016.1169311
• Languages: English
• ISSNs: 1469-7688

Abstract

Abstract : This paper tests asset pricing implications of the investor attention shift hypothesis proposed in theoretical work. We create a novel proxy for the dynamics of inattention towards firm-specific information and explore its impact on prominent return anomalies. As hypothesized and with all else equal, the proxy positively predicts the post-earnings announcement drift as well as the profitability of pairs trading, and negatively predicts the success of momentum strategies. Taken together, our findings highlight the importance of time-varying investor attention allocation for the price discovery process.