Asymmetric Attention and Stock Returns

This paper constructs a new measure of attention allocation by local investors relative to nonlocals using aggregate search volume from Google. We first present conceptual framework in which optimally choose focus their on stocks when they receive private news, leading an asymmetric between and nonlocal investors. Consistent with the main prediction this framework, we find that firms attracting abnormally high earn higher returns. A portfolio goes long short low has alpha 32 basis points per month. The results are stronger for greater degree information friction. allows one infer arrival unobservable observing investors’ behavior. was accepted Karl Diether, finance.