Abstract
Using Google search volume as a proxy for investor attention, this paper provides evidence on the role attention plays in financial markets. We first show that abnormal Google search volume (ASVI) helps explain cross-sectional variations in trading activity, even after controlling for its important determinants. Specifically, ASVI is positively related to trading volume, order imbalance and liquidity. When the relation between stock returns and ASVI is examined, we find a strong positive relation in the month after attention shocks and a reversal over a longer holding period. We further conjecture that the attention effect is more pronounced in stocks with higher limits to arbitrage. For this purpose, we construct a limits-to-arbitrage index and show that limits to arbitrage play an important role in explaining the attention effect.
| Original language | English |
|---|---|
| Number of pages | 30 |
| Journal | International Review of Finance |
| DOIs | |
| Publication status | Accepted/In press - Apr 2019 |
Cite this
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Internet search intensity and its relation with trading activity and stock returns. / Chai, Daniel; Dai, Mengjia; Gharghori, Philip; Hong, Barbara.
In: International Review of Finance, 04.2019.Research output: Contribution to journal › Article › Research › peer-review
TY - JOUR
T1 - Internet search intensity and its relation with trading activity and stock returns
AU - Chai, Daniel
AU - Dai, Mengjia
AU - Gharghori, Philip
AU - Hong, Barbara
PY - 2019/4
Y1 - 2019/4
N2 - Using Google search volume as a proxy for investor attention, this paper provides evidence on the role attention plays in financial markets. We first show that abnormal Google search volume (ASVI) helps explain cross-sectional variations in trading activity, even after controlling for its important determinants. Specifically, ASVI is positively related to trading volume, order imbalance and liquidity. When the relation between stock returns and ASVI is examined, we find a strong positive relation in the month after attention shocks and a reversal over a longer holding period. We further conjecture that the attention effect is more pronounced in stocks with higher limits to arbitrage. For this purpose, we construct a limits-to-arbitrage index and show that limits to arbitrage play an important role in explaining the attention effect.
AB - Using Google search volume as a proxy for investor attention, this paper provides evidence on the role attention plays in financial markets. We first show that abnormal Google search volume (ASVI) helps explain cross-sectional variations in trading activity, even after controlling for its important determinants. Specifically, ASVI is positively related to trading volume, order imbalance and liquidity. When the relation between stock returns and ASVI is examined, we find a strong positive relation in the month after attention shocks and a reversal over a longer holding period. We further conjecture that the attention effect is more pronounced in stocks with higher limits to arbitrage. For this purpose, we construct a limits-to-arbitrage index and show that limits to arbitrage play an important role in explaining the attention effect.
UR - http://www.scopus.com/inward/record.url?scp=85065191807&partnerID=8YFLogxK
U2 - 10.1111/irfi.12268
DO - 10.1111/irfi.12268
M3 - Article
JO - International Review of Finance
JF - International Review of Finance
SN - 1369-412X
ER -