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Does Media Coverage of Stocks Affect Mutual Funds’ Trading and Performance?

Forthcoming in Review of Financial Studies

42 Pages Posted: 18 Mar 2010 Last revised: 25 Sep 2014

Lily H. Fang

INSEAD - Finance

Joel Peress

INSEAD - Finance

Lu Zheng

University of California, Irvine - Paul Merage School of Business

Date Written: August 31, 2014

Abstract

We study the relation between mutual fund trades and mass media coverage of stocks. We find that funds exhibit persistent differences in their propensity to buy media-covered stocks. Moreover, this propensity is negatively related to their future performance. Funds in the highest propensity decile underperform funds in the lowest propensity decile by 1.1% to 2.8% per year. These results do not extend to fund sells, likely because of funds’ inability to sell short. Overall, the findings suggest that professional investors are subject to limited attention.

Keywords: mutual fund, performance, stock, media coverage, limited attention, investor behavior

JEL Classification: G11, G20, G23

Suggested Citation

Fang, Lily H. and Peress, Joel and Zheng, Lu, Does Media Coverage of Stocks Affect Mutual Funds’ Trading and Performance? (August 31, 2014). Forthcoming in Review of Financial Studies. Available at SSRN: https://ssrn.com/abstract=1572047 or http://dx.doi.org/10.2139/ssrn.1572047

Lily H. Fang

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France

Joel Peress

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 60 72 40 00 (Phone)
+33 1 60 72 40 45 (Fax)

Lu Zheng (Contact Author)

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States
9498248365 (Phone)

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