Media, Limited Attention and the Propensity of Individuals to Buy Stocks

42 Pages Posted: 16 Feb 2009 Last revised: 9 Sep 2009

See all articles by Leif Brandes

Leif Brandes

University of Lucerne

Katja Rost

University of Zurich - Institute for Organization and Administrative Science

Date Written: September 7, 2009

Abstract

This paper contributes to the existing literature on media content and asset prices by analyzing the relationship between the adoption of media guidance and a person’s propensity to buy stocks. We provide empirical evidence on this relationship while controlling for a broad range of individual characteristics and preferences. The approach is based on a recent study that suggests that investors are characterized by limited attention and use media as a heuristic when deciding which assets to buy. In line with this view, it turns out that the link between media guidance and the propensity of individuals to buy stocks is extremely robust. However, our results contradict previous findings insofar as this relationship is not moderated by a person’s degree of attention allocation to investment aspects. As the literature shows stocks with media coverage to underperform those without coverage, we conclude that the adoption of this heuristic can be very costly to investors.

Keywords: media, investor behavior, limited attention, selection model

JEL Classification: C25, D83, G11, G14

Suggested Citation

Brandes, Leif and Rost, Katja, Media, Limited Attention and the Propensity of Individuals to Buy Stocks (September 7, 2009). Available at SSRN: https://ssrn.com/abstract=1342379 or http://dx.doi.org/10.2139/ssrn.1342379

Leif Brandes (Contact Author)

University of Lucerne ( email )

Lucerne
Switzerland

Katja Rost

University of Zurich - Institute for Organization and Administrative Science ( email )

Plattenstrasse 14
CH-8032 Zurich
Switzerland

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