48 Pages Posted: 27 Jul 2016 Last revised: 8 Aug 2017
Date Written: August 7, 2017
This paper tests the investor attention hypothesis and shows that local individual investors are significant net buyers of local stocks that are in the local news regardless of the tone of news. The price reaction tests show a different pattern in the cumulative abnormal returns following national and local news. There seems to be a significant reversal in portfolio change for given local news, suggesting that local individual investors trade on both new and stale information. In general, local media does not have different effects on the trades of native locals and incomers, indicating that there is learning and social networks effects in the local markets over time. The active investors change their portfolios more than the passive investors for given additional news regardless of the tone. Taken together, local media seems to decrease investors’, in particular, non-locals’ information search costs, which is important as it leads to a decrease in information asymmetry between local and non-local investors.
Keywords: Local media, Local trades, Investor attention hypothesis, Information asymmetry
JEL Classification: G11, G14
Suggested Citation: Suggested Citation
Mavruk, Taylan, Local News and the Change in Local Portfolios (August 7, 2017). Swedish House of Finance Research Paper No. 17-12. Available at SSRN: https://ssrn.com/abstract=2814483 or http://dx.doi.org/10.2139/ssrn.2814483