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http://hdl.handle.net/2451/28347
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| Title: | Attention Allocation Over the Business Cycle |
| Authors: | Kacperczyk, Marcin
Van Nieuwerburgh, Stijn
Veldkamp, Laura |
| Issue Date: | 25-Nov-2009 |
| Series/Report no.: | FIN-09-027 |
| Abstract: | The invisibility of information precludes a direct test of attention
allocation theories. To surmount this obstacle, we develop a model that
uses an observable variable { the state of the business cycle { to
predict attention allocation. Attention allocation, in turn, predicts
aggregate investment patterns. Because the theory begins and ends with
observable variables, it becomes testable. We apply our theory to a
large information- based industry, actively managed equity mutual funds,
and study its investment choices and returns. Consistent with the
theory, which predicts cyclical changes in attention allocation, we
¯nd that in recessions, funds' portfolios (1) covary more with
aggregate payo®-relevant information, (2) exhibit more
cross-sectional dispersion, and (3) gener- ate higher returns. The
results suggest that some, but not all, fund managers process
information in a value-maximizing way for their clients and that these
skilled managers outperform others. |
| URI: | http://hdl.handle.net/2451/28347 |
| Appears in Collections: | Finance Working Papers
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