Market Reaction to Second-Hand News: Inside the Attention Grabbing Hypothesis

33 Pages Posted: 11 Apr 2011 Last revised: 9 Apr 2015

See all articles by Enrico Maria Cervellati

Enrico Maria Cervellati

Department of Management - Ca' Foscari University of Venice

Riccardo Ferretti

Università di Modena e Reggio Emilia - Dipartimento di Comunicazione e Economia

Pierpaolo Pattitoni

University of Bologna - Department of Statistical Sciences ; University of Bologna - Rimini Center for Economic Analysis (RCEA)

Date Written: January 1, 2014

Abstract

This paper investigates whether the market reaction to second-hand information is due to price pressure or information dissemination. We use the perspective of attention grabbing to analyze the market reaction to the dissemination of analysts’ recommendations published in print media. This perspective is able to explain the asymmetric market reaction to “buy” and “sell” advice, which is difficult to rationalize within the price pressure hypothesis. We base our empirical analysis on the content of a weekly column in the most important Italian financial newspaper which publishes past information and analysts’ recommendations on listed companies. Our findings show asymmetric price and volume reactions on the publication day. Contrary to previous evidence, we document a positive relationship between the number of analysts quoted in the column and the price (volume) increase associated with positive recommendations. Because the weekly columns seem to simply attract investors’ attention, with no additional new information, observing a reaction positively related to the column’s salience (proxied by the number of quoted analysts) is natural. In addition, we find that the market reaction is higher when the order size is lower, i.e., when individual investors’ trades constitute a higher fraction of the total trading activity in the market.

Keywords: attention grabbing, analysts' recommendations, anomalous market reaction, individual investors, event study

JEL Classification: G14, D82

Suggested Citation

Cervellati, Enrico Maria and Ferretti, Riccardo and Pattitoni, Pierpaolo, Market Reaction to Second-Hand News: Inside the Attention Grabbing Hypothesis (January 1, 2014). Applied Economics, Vol. 46, No. 10, 2014, Available at SSRN: https://ssrn.com/abstract=1805462 or http://dx.doi.org/10.2139/ssrn.1805462

Enrico Maria Cervellati

Department of Management - Ca' Foscari University of Venice

Fondamenta San Giobbe 873 Cannaregio
Venice, Venice 30121
Italy

Riccardo Ferretti (Contact Author)

Università di Modena e Reggio Emilia - Dipartimento di Comunicazione e Economia ( email )

Viale Allegri, 9
Reggio Emilia, Modena 42121
Italy

Pierpaolo Pattitoni

University of Bologna - Department of Statistical Sciences ( email )

Via Belle Arti 41
Bologna, 40126
Italy

University of Bologna - Rimini Center for Economic Analysis (RCEA) ( email )

Via Patara, 3
Rimini (RN), RN 47900
Italy

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