Can We Make Money off of Investors’ Limited Attention?

April 29, 2013 Academic Research Recap, Architect Academic Insights
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Limited Attention and Asset Price Efficiency: Evidence from NYSE Opening and Closing Ceremonies


The limited attention hypothesis suggests that investors’ limited cognitive resources affect securities markets. We explore predictions from the limited attention hypothesis in the context of firms participating in NYSE’s Opening and Closing Bell ceremonies. In contrast to prior research, our unique experimental design allows us to more easily differentiate information shocks from attention shocks. We have two new findings: 1) Institutional investors are affected by limited attention and 2) limited attention has little influences on asset prices.

Data Sources:


Alpha Highlight:
[Click to enlarge] The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index. Additional information regarding the construction of these results is available upon request.
Strategy Summary:

This is a paper I have been working on recently. My original hope was that the anecdote above was more systematic–it would be great to systematically earn a few percentage points trading around Bell events. Unfortunately, the plural of anecdote is data, and the data have spoken: the market is very efficient. There might be small trading opportunities associated with Opening Bell events (32bps in abnormal return after the Bell), firms with no previous Bell appearence (22bps), firms with no analyst following (25bps), or for firms that simply celebrate their listing (72bps in abnormal return). All in all, there is a lot more evidence that traders like to churn stocks when they are highlighted at a Bell Ceremony, but there is little evidence that the “smart money” allows prices to drift too far from fundamentals before trading against investors with limited attention.

If you’ve got interesting datasets or concepts you want us to test out, please send them along.

Thoughts on the paper? Or any experiences trading NYSE Bell stocks?

Would love to hear from traders…


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About the Author

Wesley R. Gray, Ph.D.

After serving as a Captain in the United States Marine Corps, Dr. Gray received a PhD, and was a finance professor at Drexel University. Dr. Gray’s interest in entrepreneurship and behavioral finance led him to found Alpha Architect. Dr. Gray has published three books: EMBEDDED: A Marine Corps Adviser Inside the Iraqi Army, QUANTITATIVE VALUE: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors, and DIY FINANCIAL ADVISOR: A Simple Solution to Build and Protect Your Wealth. His numerous published works has been highlighted on CBNC, CNN, NPR, Motley Fool, WSJ Market Watch, CFA Institute, Institutional Investor, and CBS News. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.

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