Media Coverage, Heterogeneous Beliefs, and Stock Price Bubbles

35 Pages Posted: 15 Mar 2012

See all articles by Hawfeng Shyu

Hawfeng Shyu

Sun Yat-Sen University (SYSU)

Date Written: March 10, 2012


The financial crisis induced by Lehman Brothers originated from media coverage of unauthentic rumors. In financial markets, the concept of “self-fulfilling prophecy” highlights the importance of market participants’ beliefs, and brings attention to the media’s controversial role by questioning whether intensive media coverage impacts investor sentiment and the pricing of financial assets. This paper uses the intensity of media coverage and unique trading records of retail investors to investigate the effect of media coverage on stock price bubbles. The analysis is based on a sample of daily individual transactions records from the Shanghai Stock Exchange and the China Core Newspapers Full-Text Database. The first part of the study shows that media coverage is positively correlated to stock price. In addition, results analysis indicates that media coverage is positively correlated to the cumulative divergence of opinion (heterogeneous beliefs), which in turn induces stock price bubbles. The second part of the study measures changes in investor sentiment based on the daily retail transactions, and finds that media coverage creates stock price bubbles by influencing retail investor sentiment.

Keywords: retail investor sentiment, media effect, stock price bubble, earning announcement, heterogeneous belief

JEL Classification: M41, G14, D49

Suggested Citation

Shyu, Hawfeng, Media Coverage, Heterogeneous Beliefs, and Stock Price Bubbles (March 10, 2012). Available at SSRN: or

Hawfeng Shyu (Contact Author)

Sun Yat-Sen University (SYSU) ( email )

135 Xin Gang Xi Road
Guangzhou, Guangdong Province

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics