Attention-corrected expected return
factor.formula
Attention-corrected expected rate of return = Rank (weighted expected rate of return) * Rank (attention)
in:
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Focus Corrected Return: It indicates the expected return factor after adjusting the focus.
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The ranking value of the weighted expected return in the cross section. The weighted expected return is obtained by weighting the expected return of analysts according to certain weights. The weights usually take into account the quality of the analysts or the reputation of the institutions. The ranking value is used to eliminate the dimensional differences in the data.
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The ranking value of the coverage factor in the cross section. The coverage factor is obtained by counting the number of analysts covering a certain stock over a period of time and removing duplicates by institution. The ranking value is used to eliminate dimensional differences in the data.
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The attention factor (C) is defined as: looking back a period of time, counting the number of times each stock is covered by analysts, and removing duplicate reports from the same institution. This value represents the market's attention to the stock. The higher the attention, the more attention the stock receives from analysts.
factor.explanation
The core idea of attention-corrected expected returns is to correct analysts' expected returns by combining the attention information of stocks. Stocks with high attention are often more thoroughly researched, and analysts' forecasts are more homogeneous, and their forecast errors may be relatively low. Therefore, when calculating factors, high-attention stocks are given higher weights. This factor helps to identify stocks with smaller analyst forecast bias and screen out investment targets with higher alpha.