Does It Pay to Pay Attention?

Abstract

We employ a novel brokerage account data set to investigate which individual investors are the most attentive, how investors allocate their attention, and the relation between investor attention and performance. Attention is positively related to investment performance, at both the portfolio return level and the individual trades level. We provide evidence that the superior performance of high-attention investors arises because they purchase attention-grabbing stocks whose positive performance persists for up to six months. Finally, we show that paying attention is particularly profitable when trading stocks with high uncertainty, but for which a lot of public information is available.