Out of the Limelight but in Play: Trading and Liquidity of Media and Off-Media Stocks
Lily H. Fang
INSEAD - Finance
Boston College - Finance Department; University of Pennsylvania - Wharton Financial Institutions Center; China Academy of Financial Research (CAFR)
Shanghai University of Finance and Economics
January 28, 2012
Using a novel, hand-collected dataset of a popular financial TV show and intra-day trading data from China, we compare the trading, liquidity, and returns of on-the-show and off-the-show stocks from the same industry. Employing a difference-in-difference approach, we find that off-the-show stocks experience significantly greater improvements in liquidity with higher trading volume and lower bid-ask spreads after the show. These improvements are mostly attributed to small trades. Both on-the-show and off-the-show stocks experience positive abnormal returns that do not reverse one month after the show, and the return gap between these stocks before the show disappears. There is some evidence that small traders profit more from buying off-the-show stocks than on-the-show stocks after the show. Overall, our evidence suggests that media coverage facilitates price discovery, and retail investors, as a group, behave rationally and are not as naïve as typically thought in their reaction to news from mass media.
Number of Pages in PDF File: 45
Keywords: G14, G12, G15
JEL Classification: Media, retail investors, trading, liquidity, return.working papers series
Date posted: November 25, 2011 ; Last revised: March 15, 2012
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