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

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