Notre Dame finance professors take first place for investor research

Author: Nancy Johnson

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Two University of Notre Dame business professors were awarded first place during an academic competition for their paper that examines how investors search for information. Zhi Da and Pengjie (Paul) Gao, assistant finance professors at the Mendoza College of Business, received the award during the annual competition sponsored by the Chicago Quantitative Alliance on Sept. 17.

From more than 60 original entries, Da and Gao’s research was selected with two other papers by the alliance for presentation. The second and third prize winners were from MIT and the Federal Reserve Board.

The Chicago Quantitative Alliance is a national membership organization that provides quantitative investment professionals a forum to interchange ideas and share experiences.

Da and Gao’s paper, “In search of attention,” co-authored with Joey Engelberg from the University of North Carolina at Chapel Hill, won first place with its empirical analysis of how limited attention on the part of investors may affect stock prices. The researchers proposed a new and more direct way to measure investors' demand for information. They suggested tracking aggregate search frequency on Google, an inexpensive and real-time method to measure retail investors' active attention as opposed to passive attention, such as a newspaper article that may or may not gain a lot of readers.

Tracking Google searches predicts most other attention measures, Gao said. Also, changes in search frequency directly relate to trading behavior of less sophisticated investors: They get their information from the Internet, and the more they research, the more they may become overconfident about their stock picks. This leads investors to trade more (a 1 percent increase in search frequency leads to a statistically significant 0.102 percent increase in individual orders and a 0.054 percent increase in trading volume), pushing prices away from fundamentals.

According to Gao, these price spikes are particularly relevant during an initial public offering and can contribute to a big first-day return and long-run underperformance.

Assistant Professor Gao studies asset prices, household financial decisions and institutional investor behaviors. Assistant Professor Da’s research focuses on empirical asset pricing and investment.

To learn more about their research, contact Zhi Da at (574) 631- 0354 or, or Pengjie Gao at (574) 631-8048 or