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Investor Attention Strategy

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  • Xuewu (Wesley) Wang

Abstract

This article documents the motivation, the construction, and the profitability of an investment strategy based on investor attention in the options market. Using the option volume after a 1-week dormant period as a proxy for investor attention, the author shows that heightened investor attention after the dormant period has rich investment implications. A portfolio constructed on the basis of volume spike events immediately after the dormant period generates an abnormal return of 68 basis points on a monthly basis (8.16% on an annualized basis). This abnormal return is robust to risk adjustment using standard asset pricing models. The author's findings constitute strong evidence that it is profitable for outside investors to mimic attentive investors in the options market and reap economically and statistically significant profits.

Suggested Citation

  • Xuewu (Wesley) Wang, 2017. "Investor Attention Strategy," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 18(4), pages 390-399, October.
    • Handle: RePEc:taf:hbhfxx:v:18:y:2017:i:4:p:390-399
    DOI: 10.1080/15427560.2017.1344674
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    Cited by:

    1. Lee, Chien-Chiang & Chen, Mei-Ping, 2021. "The effects of investor attention and policy uncertainties on cross-border country exchange-traded fund returns," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 830-852.
    2. Muhammad Ateeq ur REHMAN & Syed Ghulam Meran SHAH & Lucian-Ionel CIOCA & Alin ARTENE, 2021. "Accentuating the Impacts of Political News on the Stock Price, Working Capital and Performance: An Empirical Review of Emerging Economy," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 55-73, June.
    3. Muhammad Ateeq ur REHMAN & Furman ALI & Shang XIE, 2022. "Impact of Foreign Investment News on the Return, Cost of Equity and Cash Flow Activities," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 112-127, December.
    4. Xu, Yingying & Shao, Xuefeng & Tanasescu, Cristina, 2024. "How are artificial intelligence, carbon market, and energy sector connected? A systematic analysis of time-frequency spillovers," Energy Economics, Elsevier, vol. 132(C).
    5. Ahmad, Fawad & Oriani, Raffaele, 2022. "Investor attention, information acquisition, and value premium: A mispricing perspective," International Review of Financial Analysis, Elsevier, vol. 79(C).

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